KeyBanc lists 7 undervalued energy stocks, focusing on Iran conflict

Investing.com - The sharp escalation of military conflicts in the Middle East has impacted global energy markets, prompting KeyBanc Capital Markets analysts to reaffirm their bullish stance on U.S. oil producers.

In a research report, analysts Tim Rezvan and Jonathan Mardini of KeyBanc believe that despite the ongoing Iran crisis, there are still “long-term trading” opportunities in oil stocks, as current valuations do not reflect the tightening supply outlook.

On Monday, the conflict between Iran and the U.S. and Israeli coalition threatened to spread across the Middle East. After U.S. and Israeli weekend strikes that killed several senior Iranian officials, including Supreme Leader Ayatollah Ali Khamenei, Israel began attacking Hezbollah targets in Lebanon supported by Iran.

Reports of disruptions in tanker shipping through the Strait of Hormuz—accounting for nearly 20% of global oil—triggered a “knee-jerk” surge in WTI and Brent crude prices. Although OPEC+ decided to increase production by 206,000 barrels per day on Sunday, KeyBanc described this move as a “symbolic Band-Aid,” unlikely to offset immediate logistical concerns.

“We expect oil prices to rise temporarily, creating cyclical trading opportunities above the long-term trading opportunities we see in oil stocks,” the analysts wrote, noting that while the violence is “disturbing,” the fundamental upside for companies with high oil price beta is clear.

Crescent Energy

Crescent Energy remains a key choice for investors seeking exposure in the current price environment. Analysts note that oil accounts for 41% of its 2026 production mix, positioning the company well to capture rising profit margins. They add that although 61% of its 2026 outlook is hedged to provide a safety net against volatility, the remaining unhedged production allows for significant cash flow participation as WTI rises.

Diamondback Energy

As a long-term heavyweight in the Permian Basin, Diamondback is one of the companies currently under review for potential target price upgrades, analysts say. The company’s 2026 oil tilt is 54%. Importantly, its hedging strategy is defensive; 45% of its production is protected by out-of-the-money put options in the $50–$53 per barrel range, nearly fully opening the upside to capture the current rally, the analysts note.

Magnolia Oil & Gas

Analysts say Magnolia stands out as the purest play for spot price appreciation. They add that with 39% of its production in oil and a strategy of fully unhedged 2026 output, MGY is the most direct beneficiary of rising oil prices. KeyBanc views this “naked” exposure as a high-confidence bet on current geopolitical risk premiums.

Matador Resources

Like Diamondback, Matador is under review for a potential target price increase. Analysts believe that as a “dual-reporting” company with a high oil weight of 58%, Matador offers one of the highest oil beta values among mid-cap stocks. They also note that about 51% of its 2026 production is hedged, balancing cash flow security with exposure to Brent crude prices above $70.

SM Energy

Analysts say SM Energy continues to be a “buy” favorite, with 54% of its 2026 oil portfolio. They add that with 47% of its oil production hedged, the company maintains substantial “dry powder” to benefit from KeyBanc’s expectation of upward revisions in oil price forecasts by sell-side peers in the coming weeks.

Talos Energy

For investors seeking maximum oil leverage, Talos Energy offers the most aggressive positioning in this group. With an oil tilt of up to 73%, Talos is highly sensitive to fluctuations in offshore benchmark prices. Analysts add that only 36% of its 2026 production is hedged, making it a primary tool to ride the “second phase” of strong performance in the energy sector in 2026.

Viper Energy

As Diamondback’s mineral rights division, Viper offers a unique high-margin way to bet on Permian Basin oil wealth. It maintains 50% of its oil portfolio, using protective hedges similar to its parent company. Analysts believe that with 45% of its 2026 production hedged through put options in the $49–$54 per barrel range, Viper remains highly correlated with near-month prices while being protected from sudden pullbacks.

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