Citi raises Ecopetrol stock rating to buy, target to $14

Tuesday, Ecopetrol SA (NYSE:EC) shares received an upgrade from Citi analysts, moving from a Neutral to a Buy rating. The stock, currently trading at $10.25, has shown strong momentum with a 29% gain year-to-date. Accompanying this upgrade, the price target for the Colombian oil and gas company was also increased to $14.00, up from the previous $9.00. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations.

The upgrade was based on several key model updates by Citi. Firstly, the analysts reduced their weighted average cost of capital (WACC) assumption from 12% to 10%. This adjustment reflects a more favorable cost of financing for Ecopetrol, potentially enhancing the company's valuation. The company maintains strong financial health with a current ratio of 1.68 and has consistently paid dividends for 8 consecutive years.

In addition, the analysts have reinstated their probable reserves case into their core net asset value (NAV) calculations. This decision comes with the expectation that new oil exploration bidding rounds are likely to occur in Colombia under the new administration, which could lead to increased reserves for Ecopetrol.

Furthermore, Citi analysts increased their midstream multiple from 6.0x to 7.0x. This change is supported by the anticipation of new bidding rounds, which may extend the reserve/production (R/P) life of the company's assets.

Lastly, the upgrade incorporates the Citi Commodities team's revised oil price forecasts for 2025, which now stand at $67 per barrel, up from the previous estimate of $60 per barrel. This increase in oil price projections has contributed to the higher target price for Ecopetrol's American Depositary Receipts (ADRs), setting it at $14.00, a significant rise from the earlier target of $9.00. With an attractive P/E ratio of 5.72 and strong free cash flow yield, InvestingPro subscribers can access 10+ additional investment tips and comprehensive analysis in the Pro Research Report, helping investors make more informed decisions about this prominent oil and gas player.

In other recent news, Ecopetrol S.A. has been witnessing an array of developments. The Colombian state-owned oil company received an upgrade in its stock rating from JPMorgan, moving from 'Underweight' to 'Neutral'. This upgrade, as JPMorgan analyst Rodolfo Angele noted, is due to the economic and political improvements in Colombia, which have positively impacted the company's risk profile.

Ecopetrol also submitted multiple operational updates to the U.S. Securities and Exchange Commission (SEC) as part of its monthly regulatory requirements. These reports, signed by the company's Chief Financial Officer, Alfonso Camilo Barco (EBR:BAR), provide insight into the company's ongoing business and operational developments, though they do not disclose specific operational details or financial figures.

These are recent developments for Ecopetrol, reflecting both the company's commitment to transparency and its positive outlook in light of the broader economic and political improvements in Colombia. As these updates indicate, Ecopetrol continues to adhere to the stringent reporting standards set forth for foreign companies listed on U.S. exchanges.

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