Morgan Stanley Upgrades Marathon Oil & Occidental Petroleum, Calls ConocoPhillips 'Quality Stock On Sale'

Crude oil prices hit multi-year highs this week above $70 pre barrel on optimism surrounding summer reopening and travel demand.

On Friday, one Wall Street analyst adjusted his oil stock coverage ahead of what could be a big summer for oil stocks.

The Analyst: Morgan Stanley analyst Devin McDermott issued the following oil stock rating changes:

• Devon Energy Corp DVN downgraded from Overweight to Equal-Weight, price target raised from $28 to $32.
• Cimarex Energy Co XEC downgraded from Overweight to Equal-Weight, price target cut from $70 to $68.
• EQT Corporation EQT downgraded from Overweight to Equal-Weight, price target cut from $24 to $22.
• Marathon Oil Corporation MRO upgraded from Underweight to Equal-Weight, price target raised from $12 to $15.
• Occidental Petroleum Corporation OXY upgraded from Equal-Weight to Overweight, price target raised from $32 to $40.

Related Link: Exxon Board Shakeup More About Dividend Than Climate Change, Analyst Says

The Thesis: McDermott said rising commodities prices have boosted his oil group EPS estimates across the board. His bullish stance on oil exploration and production stocks is based on strengthening free cash flows, attractive valuation and upside to near-term earnings estimates.

“Overall, we see an attractive 1.7:1.0 Bull:Bear risk- reward skew for the sector, with 22% average upside to our refreshed price targets,and 39% for our Overweights,” McDermott wrote in the note.

Morgan Stanley also raised its outlook for crude oil prices. The firm has raised its 2021/2022 target for WTI crude from $55/$61 to $59/$63. The firm also raised its longer-term WTI price projection from $47.50 to $57.10.

While McDermott is bullish on the oil group as a whole, he maintains ConocoPhillips COP as his lone “top quality stock on sale” among oil stocks. Morgan Stanley has an Overweight rating and $85 target for ConocoPhillips.

Benzinga’s Take: The global shift from fossil fuel to renewable energy will not occur overnight, and the world will continue to need energy in the meantime. There’s certainly plenty of money to be made investing in alternative energy in the long-term, but analysts say there will still be big profits in the oil and gas industry for at least another decade.