RBC adds oil and gas stock with 25% upside to its outperforming basket of stocks
RBC Capital Markets has added oil and gas company California Resources to its outperforming basket of energy stocks. The investment bank said the energy company had a “relatively attractive valuation” and strong growth potential due to its carbon capture and sector division, prompting it to be added to RBC’s Global Energy Best Ideas List. “The company is more catalyst-opportunity rich compared to peers and a number of near-term events could unlock future [carbon management business] potential,” said RBC analysts led by Greg Pardy in a note to clients on Sept. 3. RBC’s $65 price target for CRC indicates a 25% upside potential. The stock has traded in a relatively narrow range this year and is currently down by 4%, reflecting the downturn in energy prices . CRC 1Y line Although stocks in RBC’s Global Energy Best Ideas List collectively fell 2.4% last month, compared to the 0.5% decline in the iShares S & P Global Energy Sector ETF , the basket of stocks is up 182% since its inception in February 2013. Meanwhile, the ETF has returned about 40% over the same period. The sector has risen 6.5% this year, underperforming the broader market. However, RBC expects CRC shares to outperform the industry over the next 12 months. ‘Significant value for CRC shareholders’ California Resources recently boosted its fundamentals with a $2.1 billion acquisition of Aera Energy earlier this year. According to RBC’s analysts, the deal has “significantly expanded” the company’s free cash flow per share and helped scale its oil and gas and carbon-management division. The investment bank’s analysts also highlighted that California’s first Class-VI CCS permit could be issued to the company by the end of October. The permit will enable CRC to capture carbon dioxide emissions from power plants and inject them into depleted oil and gas fields. “It could also progress discussions and potential agreements related to CRC’s carbon-free data center opportunity. We think this initiative could hold significant value for CRC shareholders in addition to potentially broadening its investor base,” the analysts said. — CNBC’s Michael Bloom contributed reporting.
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