Shares of onshore U.S. oil and natural gas driller Centennial Resource Development (CDEV -5.92%) were higher by roughly 11% at 2:30 p.m. EST today. There was no particular news out of the company, but one Wall Street analyst did make a slight change.
Although Piper Sandler analyst Mark Lear didn't alter the firm's investment call on Centennial Resource Development, keeping the stock at a neutral rating, the target price was increased to $5.50 per share. That was up from $3 per share previously, but since the stock closed at $5.13 yesterday, it looks like the hike was probably more about catching up to the current price than anything else.
Still, investors tend to like it when analysts increase a stock's price target, so a rally today isn't shocking. That said, Centennial Resource Development's price is currently above $5.50 per share, so any good news that this target price increase was calling for looks like it has already been priced into the stock. That said, oil prices were notably higher, while natural gas prices were down a little, which suggests that energy price fluctuations might also be in play here.
Centennial Resource Development is a relatively small exploration and production company, with a modest $1.5 billion market cap. It also has a notable amount of leverage on its balance sheet, with a financial debt-to-equity ratio of around 2.6 times. The stock has benefited greatly from a shift in investor sentiment in the energy patch, as oil prices have been increasing (the shares are up 280% so far in 2021).
But this is not a stock for conservative investors since news from Wall Street or the oil patch can lead to material price swings -- higher and lower. Today is just one of many examples of this fact over the past year or so. Most long-term investors looking at the energy sector would be better off with a larger and financially stronger name.