John Wood Group PLC (LON:WG.) has been upgraded by stockbroker Numis, which has lifted its target price to 820p, suggesting some 11% upside to the current price of 735p.
Following on from Tuesday’s positive results, Numis noted the oil services group’s “much improved” cash generation and improving outlook.
READ: Wood Group reveals first half slightly ahead of guidance
Analyst James Hubbard, however, said that the financial results alone don’t account for the subsequent share price rally (7-8%).
“We believe the share reaction was more driven by management commentary, not just for H2 2018 (where margin guidance leaves consensus EBITA of $632m looking easily achievable, assuming continued modest activity gains), but also for the medium term ('good prospects and improving conditions across energy and industrial markets'),” the analyst said.
Hubbard added: “The outlook for a materially better H2 is based on continuing activity level gains and self help in the form of AMEC/other cost savings.
“It is too early for WG to attempt to exert pricing power, except perhaps in some US shale work.
“The good news is that, as global activity levels continue to recover in oil and gas, so the prospect of a material EPS boost from higher pricing becomes more realistic.”