Deutsche Bank initiates its coverage of Weir Group with a 'buy'

15th Dec 2014 09:33

Even under the most bearish scenario, at current prices there is upside potential to engineering outfit Weir Group's share price, analysts at Deutsche Bank said in a note e-mailed to clients dated 12 December.The company has exposure to the drop in the oil price, given that it sells pressure pumps to the US unconventional oil drillers.However, at the moment the stock is discounting an approximately 35-40% fall in the so-called 'rig count'. The broker's central forecast, on the other hand, is for a decline of only between 15-20% through 2016. That yields 15% valuation upside.So the possibility of a further move lower in the oil price represents a key risk and "buying ahead of consensus downgrades always feels a bit too early" but risk/reward trade-off is skewed to the upside.The resilience of the company's margins is also a key positive, Deutsche Bank added.For all of the above reasons, the broker opted to initiate its coverage of the firm with a 'buy' recommendation and a price target of 1,975p.