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W&T Offshore Has Gained ~180% from Its 52-Week Low: What’s Next?

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W&T Offshore is up ~180% despite its recent correction

W&T Offshore (WTI), an exploration and production company involved in offshore drilling, has fallen ~23% this month, while the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has lost ~5%. WTI is ~180% higher than its 52-week low despite its recent correction, possibly due to the company’s earnings being boosted YoY (year-over-year) by higher average realized prices. In the second quarter, WTI’s average realized crude oil price rose 50.6% YoY to $67.10 per barrel from $44.50 per barrel.

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What lies ahead?

W&T Offshore could fall further if crude oil prices stay weak. Analysts expect W&T Offshore’s CFFO (cash flow from operations) to grow 60.2% YoY this year to $255.3 million from $159.4 million, and 2.6% YoY in 2019. WTI’s price-to-CFFO ratio was 3.5x on October 12, below the industry median of 5.1x. WTI’s low valuation may reflect its 2019 CFFO growth being lower than the industry median of 29.7%.

Analysts’ recommendations

Of the analysts covering W&T Offshore, 33.3% recommend “buy,” 33.3% recommend “hold,” and 33.3% recommend “sell.” KLR Group last downgraded WTI, to “sell” from “hold.” Analysts’ average target price of $7.60 for WTI implies a ~4% upside to its current price.

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