The Worleyparsons Limited (ASX: WOR) share price is running higher this morning after Deutsche Bank upgraded the stock and pointed to a 40% upside for the oil and gas engineering group.
WOR's share price increased 2.1% to $14.48 in morning trade when the S&P/ASX 200 (ASX: XJO) index is trading close to flat.
The gain may not be as strong as the G8 Education Ltd (ASX: GEM) share price or Flight Centre Travel Group Ltd (ASX: FLT) share price, but it's still a great outcome for shareholders who've suffered through a 17% crash in Worleyparsons' share price in the last three months.
An overhang from its capital raising and the collapse in the crude oil price have conspired to send the stock reeling around a seven-month low but the weakness represents a buying opportunity according to Deutsche Bank as it upped its recommendation on the stock to "buy" from "hold".
"We like WOR for its exposure to the thematic of a recovery in O&G [oil and gas] capex [capital expenditure] following a period of under investment," said the broker.
"While WOR's share price could be negatively impacted by concerns around global growth and oil price declines, we expect the recovering O&G capex thematic to provide WOR with significant revenue growth and margin expansion opportunities."
There's little doubt in my mind that the stock is cheap for the patient investor. While Worleyparsons is trading on a FY19 consensus price-earnings (P/E) of 20 times, this falls to around 16 times in FY20.
That's attractive given that Deutsche is forecasting the group to grow earnings per share (EPS) by a compound annual growth rate (CAGR) of 22% from FY18 to FY21.
I am anticipating a rebound in the oil price and prefer to have an overweight position in Worleyparsons to gain exposure to this thematic instead of energy stocks like Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO) due to valuations.
However, Worleyparsons share price could remain under pressure for a few weeks as around $521 million of its shares that weren't taken up be shareholders in the latest underwritten capital raise have found its way into the hands of its sub-underwriters.
These sub-underwriters are likely to drip feed the excess stock on-market and that could keep the stock under $15.56 – the price tag on the capital raise.
But once the excess stock goes through the market, I believe Worleyparsons is well placed to outperform in 2019, particularly since it now has significant exposure to the US oil & gas industry through the latest acquisition (which was the reason for the capital raising).
Those looking for other large cap stocks that are well placed to outrun the market will want to read this free report from the experts at the Motley Fool.
They've picked their best three blue-chip stock ideas for FY19 and you can find out what these are by following the free link below.
