Today's Must Read
Permian Focus & Anadarko Acquisition to Aid Occidental (OXY)
Williams (WMB) Banks on Transco Pipeline Amid High Debt Load
Wednesday, August 7, 2019
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features updated research reports on 16 major stocks, including Royal Dutch Shell (RDS.A), Occidental Petroleum (OXY) and Williams Companies (WMB). These research reports have been hand-picked from roughly 70 reports published by our analyst team today.
Royal Dutch Shell’s shares have outperformed the Zacks International Integrated Oil industry in the year to date period, losing -1.7% vs -2.3%. Notwithstanding the second-quarter earnings miss, the recommendation for Royal Dutch Shell is maintained at 'Neutral'. While the oil company could not match profit expectations due to lower commodity prices and depressed refining margins, cash flows surged during the most recent quarter, allowing it to cut debt while performing share buybacks and cash dividend distribution. The Zacks analyst thinks the Anglo-Dutch company's position as a key supplier of liquefied natural gas should benefit its long-term cash flow growth on the back of attractive growth opportunities. However, there are worries over the drop in its downstream earnings. The company’s poor reserve replacement ratio is another concern. Hence, investors are advised to wait for a better entry point.
Shares of Occidental Petroleum have underperformed the Zacks U.S. Integrated Oil industry over the past year, declining -41.4% vs. -39.6%. Occidental Petroleum’s second-quarter earnings and revenues were better than expected, courtesy of strong production from Permian Resources. The company is benefiting from increasing oil production from Permian resources. Its decision to acquire Anadarko Petroleum will further expand operations in the Permian Basin. The strategy to divest lower-margin oil and gas assets will be productive for the company over the long run. However, like other oil and gas companies, Occidental faces the risk of cost overruns and interruptions due to delays in drilling and other approvals. A highly competitive industry and ongoing fluctuation in commodity prices are adversely impacting operations of the company. Increasing debt level is another concern.
Williams Companies’ shares have underperformed the Zacks Oil Production and Pipeline industry over the past three months, losing -21% vs. -18.4%. The Zacks analyst thinks that Williams is well positioned to capitalize on the projected increase in U.S. natural gas demand owing to its impressive portfolio of large-scale value-creating projects. The firm’s existing and expansionary projects on the Transco pipeline helped the company deliver an earnings beat in the second quarter. Williams’ buyout of its midstream arm and JV deals with Brazos Midstream and Canadian Fund bode well for future growth. However, the company's high leverage restricts its financial flexibility. Regulatory setback suffered by the Constitution Pipeline project is also a cause for concern. Further, Williams’ extensive natural gas exposure raises sensitivity to the commodity’s weak price.
Other noteworthy reports we are featuring today include VeriSign (VRSN), TransDigm (TDG) and American Water Works (AWK).
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Note: Our Director of Research Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>