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Why the Oil Search (ASX:OSH) share price is the worst performer today

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The Oil Search Limited (ASX: OSH) share price crashed on Friday after brokers downgraded their recommendation on the stock.

The Oil Search share price tumbled 5.6% during lunch time trade to $3.52 – making it the worst performer on the S&P/ASX 200 Index (Index:^AXJO).

In case you are wondering, the Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price is the second worst with a 4.1% slump after Regis Healthcare Ltd (ASX: REG) rejected its takeover offer.

The Orica Ltd (ASX: ORI) share price is in third position with a 4% drop to $16.30 after it posted a disappointing profit result.

Oil Search share price slumps on broker downgrades

However, it was the OSH share price that’s holding the wooden spoon even as the oil price inched up. This is because at least two brokers cut their rating on the stock following its 2020 Investor Day event.

Management didn’t reveal anything untoward. In fact, JP Morgan noted a few positive bits of news including a sizable lift in OSH’s estimated resources in Alaska.

The estimated 2C resources at its Alaska project was increased to 968 million barrels of oil equivalent (mmbbl) on a gross basis. The key driver for the upgrade came from the satellite deposits.

Oil Search also received the green light from its joint-venture partners for the Papua LNG project.

Good news priced into the OSH share price

“Notwithstanding these positive outcomes, the stock price has increased 49% this month alone (ASX200 +10%) and is now in line with our revised NPV so we downgrade to Neutral,” said JP Morgan.

The broker isn’t alone in thinking the stock has shot up to fair value. UBS also downgraded the stock to “neutral” from “buy” as it believes the stock is pricing in an oil price of US$58 a barrel, the highest among the energy stocks under its coverage.

How the OSH share price compares to the oil price

The Brent crude price is currently trading at US$44.21 a barrel after it crashed by around 27% over the past year.

“At the current price, the market is paying A$0.93/sh for exposure to growth projects in Alaska and Papua LNG with an FID [final investment decision] on either unlikely within 12 months, we move Oil Search to least preferred across our Energy coverage,” said UBS.

Despite the recent jump in the Oil Search share price, the stock is still the worst performer among its large cap peers.

Oil Search lost 52% of its value over the past 12 months. The Woodside Petroleum Limited (ASX: WPL) share price fell 36% and the Santos Ltd (ASX: STO) share price surrendered 27% of its value.

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Returns as of 6th October 2020

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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