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On Monday, Citi analysts announced a downgrade for California Resources Corporation (NYSE:CRC) stock from Buy to Neutral, with a significant reduction in the price target from $62.00 to $36.00. The stock, currently trading at $34.83 and near its 52-week low of $34.43, has seen a sharp 21% decline in the past week. According to InvestingPro analysis, the company appears undervalued based on its Fair Value metrics. The adjustment follows a recent decline in oil prices, with West Texas Intermediate (WTI) crude falling to $62, which is below Citi’s estimated marginal cost of approximately $65.
The downgrade was accompanied by commentary on the broader energy sector. Citi analysts pointed out that the conventional strategy in the energy market is to invest in low-cost producers when oil prices drop below the marginal cost of production. They noted that Friday’s oil price drop signaled a buying opportunity for certain stocks in the sector. Despite recent challenges, CRC maintains solid fundamentals with an EV/EBITDA ratio of 3.68 and a P/E ratio of 8.98, suggesting potential value for investors. InvestingPro subscribers can access 8 additional ProTips and comprehensive financial analysis for CRC.
Specifically, Citi upgraded Diamondback Energy (NASDAQ:FANG) to Buy, citing the stock’s year-to-date and trailing twelve-month sell-offs as chances to invest in a high-quality exploration and production (E&P) company at a discount. The analysts believe that the current market conditions, influenced by the trade war and OPEC’s actions, offer a unique context for this correction.
The analysts also highlighted that while they endorse California Resources’ long-term strategies, such as carbon capture, utilization, and storage (CCUS) and power growth initiatives, the company’s core operations in higher-cost California production could delay its recovery in the face of macroeconomic uncertainties.
Furthermore, the market’s focus is expected to shift beyond short-term hedges and towards the relative break-even points of companies, which might unfavorably affect California Resources and other similar firms. This perspective led to the neutral stance on California Resources, with the expectation that smaller, higher-cost producers will take longer to bounce back. The company currently offers a 4.45% dividend yield and maintains moderate debt levels, with a debt-to-equity ratio of 0.35. For detailed analysis of CRC’s financial health and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers over 1,400 US stocks with expert insights and actionable intelligence.
In other recent news, California Resources Corporation reported its fourth-quarter 2024 earnings, which fell short of expectations. The company posted an earnings per share (EPS) of $0.91, missing the forecasted $0.9898, and revenue of $877 million, below the anticipated $908.46 million. Despite the earnings miss, the company highlighted significant progress in carbon capture and storage initiatives and returned approximately 85% of its 2024 free cash flow to shareholders. Barclays (LON:BARC) analyst Betty Jiang adjusted the price target for California Resources to $55, maintaining an Equalweight rating, after noting that the company’s production and costs aligned closely with predictions, while capital expenditures were significantly below expectations.
In contrast, Truist Securities expressed continued confidence in California Resources by maintaining a Buy rating and a $75.00 price target. Truist anticipates the company is on the verge of securing a significant data center contract, which could leverage its operational capabilities. The firm also noted that California Resources’ strong balance sheet would support any upcoming data center agreements. As the company plans to expand its drilling operations in 2025, it remains focused on reducing debt and enhancing shareholder returns. These developments indicate a mixed outlook from analysts, with some emphasizing the company’s potential for growth and others highlighting challenges in meeting financial forecasts.
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