Ecopetrol Analysts Still Skeptical Despite Bold Investment Plan

(Bloomberg) -- Colombian oil producer Ecopetrol’s ambitious plan to boost production and reserves wasn’t enough to win over the Street.

Even after executives pitched a new strategy in New York this week -- which calls for up to $15 billion in investments by 2021 -- Ecopetrol remains the large cap oil company with the lowest average analyst rating, according to data compiled by Bloomberg. Its American Depository Receipts, traded in New York, have failed to win a single buy rating.

Analysts said they were encouraged, but couldn’t bring themselves to recommend the stock, citing a relatively expensive valuation and long-term concerns about the company’s ability to add new reserves of gas and crude.

“While we continue to recognize the significant strides Ecopetrol has made, our more neutral stance remains predicated on its premium valuation,” Scotiabank analysts led by Gavin Wylie wrote in note, keeping a sector perform rating.

BTG Pactual said the 2021 production guidance is “aggressive” and faces “major operating challenges,” according to analyst Daniel Guardiola, who maintained a sell rating. “Despite healthy operating figures and strong free cash flow we reiterate our sell on valuation,” he said.

Morgan Stanley maintained its underweight rating, saying “we struggle to be constructive with long-term production trends, and see M&A as a feasible (but not accretive) alternative," analysts led by Bruno Montanari and Guilherme Levy wrote. Even after a relevant correction in recent months, the company’s shares are still expensive on a global basis.

The ADRs have 8 hold and 6 sell recommendations.

To contact the reporters on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net;Ezra Fieser in Bogota at efieser@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Will Daley

©2019 Bloomberg L.P.