A recent report from FactSet Insight highlights that most energy industry analysts are bullish on the sector despite tumbling oil and gas prices over the last few weeks leading to major negative earnings revisions. FactSet Senior Earnings Analyst John Butters points out that “the Energy sector is tied with the Health Care sector for the highest percentage of Buy ratings (57%) of all ten sectors as of December 31.”
Butters argues that the explanation for this apparent conundrum lies in the fact sector analysts seem to believe oil prices will rebound significantly in the next few months. FactSet data shows the mean target price for crude oil (WTI) for 2015, which is based on estimates from 85 analysts, is currently $76.33.
“Bargain priced” energy sector stocks based on analyst estimates
The FactSet report provides a table listing the top five companies in the energy sector based on highest percentage of Buy ratings and largest upside differences between mean target price and closing price as of December 31. Of note, Schlumberger ranks #6 overall for highest percentage of Buy ratings in the entire S&P 500, while Range Resources (#1), QEP Resources (#3), EQT Corporation (#4), Southwestern Energy (#7), and Nabors Industries (#9) are all in the top 10 in the entire S&P 500 for largest upside difference between mean target price and closing price as of December 31st.
Wall Street analysts project S&P 500 up again in 2015
According to FactSet, the consensus among industry analysts is that the S&P 500 will move up by 6.8% in 2015. This figure is calculated as the difference between the bottom-up target price and the closing price for the index as of December 31st. Butters then aggregated the mean target price estimates (based on company-level estimates from industry analysts) for all the firms in the S&P index to come up with a bottom up target price for the S&P 500 of 2198.08. This is 6.8% above the December 31st closing price of 2058.90.
Butter also highlights that market strategists anticipate the S&P 500 Index will enjoy a 3.6% increase over the next four quarters. This figure is calculated the difference between the top-down mean target price and the closing price for the index as of December 31st. Based on the average of the nine index level target price estimates from market strategists, the top-down mean target price for the S&P 500 comes to 2133.00, around 3.6% higher than the 12/31 closing price of 2058.90.
Of note, given differences in reporting cycles, the top-down mean target price estimate at the end of December still had some individual target price estimates for 2014. When you remove or update these 2014 estimates, the average of the six index level target prices for 2015 is 2191.67. This is more than 6.4% above the 12/31 closing price of 2058.90.