Potential at Weir "underappreciated", Citi upgrades to 'buy',

7th Jul 2014 09:57

Shares in Weir Group were making decent gains on Monday morning after the stock was upgraded from 'neutral' to 'buy' at Citigroup, which said that the engineer's opportunities in oil and gas are "underappreciated" by the market.The bank said that "Weir deserves a premium rating to the sector to reflect positive exposure to structural trends in oil and gas, further earnings upgrade potential and improving returns".To reflect improved US oil and gas growth, the bank has raised its earnings forecasts for Weir over the next three years and hiked its target price for the stock from 2,600p to 3,100p.Citi said that rising fracking service intensity in the US should drive equipment replacement and, combined with comments from companies in the oil services sector, indicate the potential for earnings upgrades over the next two years.Meanwhile, global unconventional recoverable reserves - around three to four times the size of the US reserves - provide opportunities over the long-term.Citi also said that Weir's balance sheet strength and £700-800m of "firepower" is an area of possible growth. It also reckons Weir "could be attractive to potential acquirers due to its strong market positions", though this is not its base-case scenario.Weir was trading 2.5% higher at 2,782p by 09:51.BC