What happened

Shares of Oceaneering International (OII) rallied more than 16% by 11:30 a.m. EDT on Wednesday. The oil stock's move higher came in the wake of an analyst upgrade.  

So what

Bank of America analyst Mike Sabella upgraded Oceaneering stock from neutral to buy. He also boosted the bank's price target from $12.50 a share to $15 (implying 9% upside even after today's jump). 

A drilling rig in the water with the sun setting in the background.

Image source: Getty Images.

The analyst commented that the market still doesn't fully appreciate Oceaneering's upside as the oil-field services market continues to recover. In his view, Oceaneering can generate 46% more EBITDA in its fiscal year 2022 than it did in the prior peak of the oil-field services cycle. However, shares are trading at a 63% lower valuation than they did at the previous cycle's peak. That's why Sabella sees Oceaneering as an "underappreciated turnaround story."

Now what

Oceaneering has been a red-hot stock this year. Shares are up more than 72% after today's rally on the view that the offshore oil market will bounce back in the coming months. 

However, this view assumes that the oil market does continue recovering, incentivizing oil companies to drill more offshore wells. While that's possible, surging global COVID-19 case counts could keep weighing on oil demand. On top of that, oil companies are increasingly reluctant to sanction new oil projects, given the volatility in the oil market and the accelerating shift toward cleaner alternatives like renewable energy. Those potential headwinds make Oceaneering a higher-risk oil stock.