Zinger Key Points
- Goldman Sachs downgraded MGY to Neutral and OXY to Sell, citing valuation concerns and limited upside.
- Analyst reinstated EXE with a Buy rating, highlighting its capital efficiency and LNG export growth potential.
Goldman Sachs analyst Neil Mehta downgraded Magnolia Oil & Gas Corporation MGY and Occidental Petroleum Corporation OXY, while reinstating coverage on Expand Energy Corporation EXE.
MGY: The analyst downgraded the company from Buy to Neutral and cut the price forecast from $27 to $26.
Mehta writes that the bearish outlook reflects the company’s outperformance relative to peers.
This performance has been driven by effective cost improvement initiatives and a focus on capital efficiencies in 2024, along with its relatively low leverage, adds the analyst.
While he still anticipates strong operational execution, he believes the stock now reflects these advantages.
The analyst estimates MGY to maintain relatively flat production costs over the next two years as the majority of significant operational cost savings were realized through the company’s early 2024 cost-saving initiative.
OXY: Mehta downgraded the company from Neutral to Sell and cut the price forecast from $54 to $45.
The bearish outlook reflects the company's pause on capital returns to shareholders until meaningful balance sheet improvements are achieved. Additionally, while asset sales could support deleveraging, further clarity is needed on their scope and impact, adds the analyst.
Given the less attractive risk/reward profile, with an 8% downside compared to 25% upside for oil-focused peers, the analyst sees limited upside potential.
The analyst increased the estimated FCF yield from 10.0% to 11.0%, citing investors’ growing emphasis on capital returns and the company’s higher leverage.
EXE: Mehta resumed coverage on the company with a Buy rating and price forecast of $121, implying an 18% upside from current levels.
The decision follows the merger of Chesapeake Energy (CHK) and Southwestern Energy (SWN).
The analyst writes that Expand Energy’s emphasis on capital efficiency, disciplined activity, and risk management strengthens confidence in its operational outlook.
While gas production growth from Haynesville is expected to support rising LNG export demand, the company’s dual-basin presence in Appalachia and Haynesville provides a low-cost core business in Appalachia with expansion potential in Haynesville, reducing basin takeaway constraints, adds the analyst.
Additionally, its flexible operational strategy offers strong long-term exposure to structural improvements in natural gas prices, says the analyst.
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