Why EOG Resources Might Pull Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of EOG Resources (NYSE: EOG  ) slipped nearly 3% today after FBR Capital Markets downgraded the oil and gas producer from outperform to market perform.

So what: Along with the downgrade, analyst Rehan Rashid slapped a price target on the stock of $200, representing just 8% worth of upside to yesterday's close. While momentum traders might be attracted to the stock's steady climb in 2013, Rashid believes that EOG's production prospects, although solid, are now baked well into the valuation.

Now what: FBR expects EOG to trade at about 60% of its 3P [proven plus probable plus possible reserves] NAV and six times its total enterprise value. "Though we expect continued improvements toward a 15% recovery factor and improved IPs (reflected by our 28% production growth estimate for 2014 and $336/share current 3P NAV)," noted FBR, "we feel that the low-hanging geologic and productivity gains have been priced in and risk/reward from these levels seems balanced." With EOG shares up nearly 60% over the past six months alone and trading at a clear forward P/E premium to its peers, I'd agree that the upside looks limited at the current levels. 

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