Morgan Stanley Raises Energy Sector PT to $139 from $134, Maintains Overweight Rating

Morgan Stanley Raises Energy Sector PT to $139 from $134, Maintains Overweight Rating

Morgan Stanley has raised its price target for the energy sector to $139 from $134, while maintaining an overweight rating, according to a recent note to clients. The broker's positive outlook is driven by several key factors, including anticipated improvements in refining margins and a favorable outlook for downstream names.

The broker highlighted Viva Energy (VEA) as one of the preferred names within the energy sector. Viva Energy's management has provided guidance for 2025 production at 9.0-10.5 million barrels of oil equivalent (mmboe) and capital expenditure (capex) of US$120-140 million. Morgan Stanley forecasts refining margins of US$7.90 per barrel (bbl) for 2025, US$10.10/bbl for 2026, and US$11.00/bbl onwards. The broker maintains an equal-weight rating for Viva Energy with a target price of $2.11, indicating a neutral view on the stock's performance relative to the broader market.

Additionally, the broker prefers downstream names such as Ampol and Viva Energy while maintaining a less favorable view on Beach Energy and Origin Energy. The sector view is in-line, reflecting a neutral stance on the broader energy sector relative to other sectors.

The broker's positive outlook on the energy sector is supported by recent acquisitions and cost-cutting measures that have strengthened the business, growth, and portfolio duration of oil and gas companies like Chevron (CVX). The acquisition of Hess by Chevron is expected to be 3.5% accretive to 2026 free cash flow per share, boosting the 2025-2030 cash flow compound annual growth rate from 3% to 5% and free cash flow from 6% to 8% [2].

The broker's optimistic view on the energy sector is also reflected in its ratings for individual companies. For instance, Morgan Stanley has increased its price target for Lumentum (LITE) to $92 from $85, maintaining an equal-weight rating. Similarly, the broker has raised its price target for Coherent (COHR) to $97 from $92, also maintaining an equal-weight rating [1].

In conclusion, Morgan Stanley's positive outlook on the energy sector is driven by anticipated improvements in refining margins, favorable outlooks for downstream names, and recent acquisitions and cost-cutting measures that have strengthened the business, growth, and portfolio duration of oil and gas companies.

References:
[1] https://finance.yahoo.com/news/lumentum-coherent-boosted-increased-cloud-142303002.html
[2] https://finance.yahoo.com/news/chevron-apos-hess-acquisition-spur-142108179.html
[3] https://www.marketscreener.com/news/morgan-stanley-rates-vea-as-equal-weight-ce7c5edad981ff24