JPMorgan has adjusted its outlook on Civitas Resources (NYSE: CIVI), raising the stock’s price target from $67.00 to $70.00 while keeping an Overweight rating on the shares.
The firm anticipates a strong operational quarter for Civitas, with oil production estimates aligning with market expectations.
The forecast for the third quarter of 2024 includes cash flow per share (CFPS) at $7.94, which is slightly below the Street’s estimate of $8.21. This adjustment follows a market-to-market assessment for third-quarter commodity prices.
The bank’s estimated earnings before interest, taxes, depreciation, and amortization (EBITDA) for Civitas stands at $902 million, again falling short of the Street’s expectation of $923 million by 3%.
However, JPMorgan projects that oil production will reach 161.3 thousand barrels per day (MBo/d), surpassing the Street’s estimate. The total production estimate of 349.4 thousand barrels of oil equivalent per day (MBoe/d) also exceeds the Street’s projection of 345.9 MBoe/d, as the bank expects a slight quarter-over-quarter growth in and natural gas liquids (NGLs).
Capital expenditure (capex) for the third quarter is estimated at $399 million by JPMorgan, which is above the Street’s estimate of $382 million by 4%. However, the fourth-quarter capex estimate is set at $300 million, which is 8% below the Street’s expectation of $327 million. The full-year 2024 capex estimate from JPMorgan totals $1.92 billion, closely aligning with the Street’s forecast of $1.90 billion.
Civitas is projected to generate $397 million in free cash flow (FCF) during the third quarter of 2024. Following the second-quarter earnings, the company adjusted its cash return strategy to offer flexibility between stock buybacks and variable dividends. JPMorgan expects that 80% of Civitas’s variable return went to share repurchases in the third quarter, amounting to approximately $79 million.
Looking ahead to fiscal years 2025 and 2026, JPMorgan estimates that Civitas will generate free cash flow of $1.19 billion and $1.18 billion, respectively, which represents a free cash flow yield of approximately 26% at recent strip prices of around $68 and $66 per barrel.
In other recent news, Civitas Resources has made significant strides in its financial and operational performance. The energy company reported a robust second quarter in 2024, characterized by increased production and reduced costs. This was driven by its strategic expansion into the Permian Basin, resulting in a production boost of 12% and a 5% increase in oil, exceeding initial expectations.
Civitas also announced a substantial share repurchase plan, returning $1.5 billion to shareholders, and committed to generating over $900 million in free cash flow in the second half of 2024. This is in line with the company’s focus on cost reduction, shareholder returns, and operational optimization.
Analysts have reacted to these developments with JPMorgan assigning an Overweight rating to the company, Mizuho Securities maintaining an Outperform rating but lowering its price target to $84, and Truist Securities raising its price target to $101, keeping a “Buy” rating.
InvestingPro Insights
Civitas Resources (NYSE:CIVI) presents an intriguing investment opportunity, as highlighted by recent InvestingPro data and tips. The company’s P/E ratio of 7.15 and P/E ratio (Adjusted) of 5.52 for the last twelve months as of Q2 2024 suggest that the stock may be undervalued relative to its earnings. This aligns with JPMorgan’s bullish outlook and increased price target.
InvestingPro Tips reveal that Civitas has raised its dividend for 3 consecutive years and currently pays a significant dividend to shareholders. The current dividend yield stands at an impressive 11.96%, which could be particularly attractive to income-focused investors. However, it’s worth noting that the dividend growth rate has decreased by 24.44% over the last twelve months.
The company’s financial health appears robust, with InvestingPro data showing a strong revenue growth of 53.07% for the last twelve months as of Q2 2024. This growth trend is further supported by the quarterly revenue growth of 98.73% in Q2 2024, which may contribute to the positive free cash flow projections outlined by JPMorgan.
For investors considering Civitas Resources, InvestingPro offers 5 additional tips that could provide further insights into the company’s financial position and market performance. These additional tips, along with real-time metrics, are available through the InvestingPro product.
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