QEP Resources Inc (NYSE:QEP) — This spin-off from Questar Corporation (NYSE:STR) is a holding company for two energy-related companies, QEP Energy Company and QEP Marketing Company. They work together to explore and market oil and gas in the Rocky Mountain and Midcontinent regions of the U.S.
On Oct. 27, Standard & Poor’s reiterated a four-star buy on the stock based on the company’s strong balance sheet and their recent acquisitions in the Permian Basin that should add value in 2017. They believe that the Permian has some of the best economics of any shale play in the “Lower 48” based on recent data.
Yesterday, another research firm, FBR Capital, upgraded QEP to “outperform” from “perform” and raised QEP’s price target to $24 from $20.
S&P points out that QEP is transitioning from natural gas to crude oil because of the potentially more profitable drilling returns in the Permian and its Williston Basin Acreage. The stock’s price is highly related to the price of WTI crude oil, which appears to be in a recovery. Because this company has an earnings loss estimate for 2016 and a smaller loss estimate for 2017, QEP is being reviewed primarily on a technical basis.
Technically, QEP is in a consolidation following the recovery from a low at under $10 in January 2016. QEP rallied from $10 to $20 from March to mid-May last year and then consolidated between $16.50 and $20.50 for the remainder of the year.
Buyers began to emerge in mid-October when the stock successfully tested its 200-day moving average, then tested the high at $20.50, pulling back to the mid-point of its trading range and the support line at $18.32. Recent high-volume buying and a possible successful test of support at $18.32 provide sufficient evidence for speculators to take a risk position in QEP at $19.50 with a trading target of $24. This stock is a high-risk recommendation, thus a stop-loss order should be entered at $17.