We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Independence Contract Upped to Strong Buy as Oil Rallies
Read MoreHide Full Article
On May 21, Zacks Investment Research upgraded onshore driller Independence Contract Drilling Inc. (ICD - Free Report) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
From the 12-year low mark of $26.05 per barrel in February this year, West Texas Intermediate (WTI) crude – closed at $47.75 per barrel yesterday – is now heading toward $50 per barrel. This is a huge improvement on the crude front especially when oil market weakness impacted the market for a length of time. Let’s analyze the reasons that led to the crude rally.
Leading investment bank The Goldman Sachs Group Inc. GS recently outlined that the oil market has started taking a U turn from an oversupplied to a deficit market. Supply shortage mostly in Nigeria and Canada prompted Goldman Sachs to say that the oil market is facing a deficit in crude production.
In Nigeria, attacks by a militant group called Delta Avengers on oil installations led to a shut down in production. Nigeria reduced its crude production to 1.69 million barrels per day (bpd), hitting its lowest level in 22 years. The group recently bombed an offshore platform owned by Chevron Corporation CVX. Among the other attacks, this group targeted a series of refineries and an export terminal.
The Alberta region in Canada has been hit by a wildfire for two weeks now and is threatening the major oil sands’ production facilities.
Along with supply shortage there is a steady improvement in oil demand. In fact, Goldman projects 2016 worldwide crude demand to improve by 1.4 million Bbl/d, which is higher than its prior expectation.
Hence, supply disruption along with improving global demand that led crude on its northward journey has been good news for upstream energy players. This is because there is a positive correlation between those companies and oil price as the firms will be able to generate more cash flows after selling the commodity at higher prices.
Independence Contract Drilling, an onshore drilling player with technologically advanced ShaleDriller rigs for unconventional resources that assist the exploration and production companies to efficiently drill their wells, also expects improved business. This is because with higher oil prices, Independence Contract Drilling will likely get more contracts. On top of that, the company reported an average positive earnings surprise of 49.68% in the last four quarters despite weak crude prices.
These bullish factors prompted a tendency for upward estimate revisions in recent times. In fact, over the last 30 days, the Zacks Consensus Estimate for second-quarter 2016 narrowed from 16 cents loss per share to a loss of 11 cents. Moreover, for 2016, the Zacks Consensus Estimate significantly narrowed to a loss of 42 cents from a loss of 68 cents.
Other Stocks to Consider
Other stock in the energy sector that is worth considering include McDermott International Inc. . The stock also sports a Zacks Rank #1.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Independence Contract Upped to Strong Buy as Oil Rallies
On May 21, Zacks Investment Research upgraded onshore driller Independence Contract Drilling Inc. (ICD - Free Report) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
From the 12-year low mark of $26.05 per barrel in February this year, West Texas Intermediate (WTI) crude – closed at $47.75 per barrel yesterday – is now heading toward $50 per barrel. This is a huge improvement on the crude front especially when oil market weakness impacted the market for a length of time. Let’s analyze the reasons that led to the crude rally.
Leading investment bank The Goldman Sachs Group Inc. GS recently outlined that the oil market has started taking a U turn from an oversupplied to a deficit market. Supply shortage mostly in Nigeria and Canada prompted Goldman Sachs to say that the oil market is facing a deficit in crude production.
In Nigeria, attacks by a militant group called Delta Avengers on oil installations led to a shut down in production. Nigeria reduced its crude production to 1.69 million barrels per day (bpd), hitting its lowest level in 22 years. The group recently bombed an offshore platform owned by Chevron Corporation CVX. Among the other attacks, this group targeted a series of refineries and an export terminal.
The Alberta region in Canada has been hit by a wildfire for two weeks now and is threatening the major oil sands’ production facilities.
Along with supply shortage there is a steady improvement in oil demand. In fact, Goldman projects 2016 worldwide crude demand to improve by 1.4 million Bbl/d, which is higher than its prior expectation.
Hence, supply disruption along with improving global demand that led crude on its northward journey has been good news for upstream energy players. This is because there is a positive correlation between those companies and oil price as the firms will be able to generate more cash flows after selling the commodity at higher prices.
Independence Contract Drilling, an onshore drilling player with technologically advanced ShaleDriller rigs for unconventional resources that assist the exploration and production companies to efficiently drill their wells, also expects improved business. This is because with higher oil prices, Independence Contract Drilling will likely get more contracts. On top of that, the company reported an average positive earnings surprise of 49.68% in the last four quarters despite weak crude prices.
These bullish factors prompted a tendency for upward estimate revisions in recent times. In fact, over the last 30 days, the Zacks Consensus Estimate for second-quarter 2016 narrowed from 16 cents loss per share to a loss of 11 cents. Moreover, for 2016, the Zacks Consensus Estimate significantly narrowed to a loss of 42 cents from a loss of 68 cents.
Other Stocks to Consider
Other stock in the energy sector that is worth considering include McDermott International Inc. . The stock also sports a Zacks Rank #1.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>