Coterra Energy stock rating downgraded by Goldman Sachs on oil shift

Investing.com - Goldman Sachs downgraded Coterra Energy (NYSE:CTRA) from Buy to Neutral with a price target of $31.00 on Monday, citing the company’s increased oil exposure following recent Permian acquisitions. According to InvestingPro data, Coterra maintains a "GOOD" overall financial health score and currently appears undervalued based on its Fair Value analysis.

The investment bank noted that Coterra’s oil share of total production is estimated to reach 21% in 2025, up from 14% in 2023, while its natural gas production share is expected to decrease to 64% from 72% during the same period.

Goldman Sachs pointed to Coterra’s year-to-date outperformance relative to its peer group, with shares up 8% compared to the larger cap diversified peer average, suggesting less upside potential relative to oil-focused companies with Buy ratings.

The firm acknowledged that Coterra’s free cash flow sensitivity to changes in Henry Hub prices remains roughly in-line with peer Ovintiv (NYSE:OVV), and views the company’s leverage as competitive compared to the peer average, with 2026 net debt to EBITDA of 0.5x versus the peer average of 0.9x.

Goldman Sachs indicated it awaits further clarity on the re-acceleration of shareholder returns, noting management’s near-term focus on debt reduction given the current macro environment.

In other recent news, Coterra Energy reported its first-quarter 2025 earnings, surpassing expectations with an EPS of $0.80, compared to the forecasted $0.74. However, the company’s revenue fell short, coming in at $1.9 billion against an expected $1.92 billion. JPMorgan maintained an Overweight rating on Coterra Energy, despite reducing its price target to $32 from $34, following the company’s announcement of a 4% decrease in fiscal year 2025 capital expenditure expectations. This decision aligns with Coterra’s plan to remove three Permian rigs in the Delaware Basin, impacting capex by approximately $120 million, while increasing activity in the Marcellus region with an additional $50 million in capex.

Piper Sandler also maintained an Overweight rating on Coterra Energy, emphasizing the company’s enhanced reinvestment opportunities following recent acquisitions in the New Mexico Delaware Basin. The firm highlighted Coterra’s reallocation of some Delaware Basin capital expenditure to the Marcellus formation and the shift to the Western Corridor after pausing Harkey completions due to mechanical issues. Coterra Energy has been addressing operational challenges, particularly the high water production at its Harkey Shale wells, which has led to a temporary halt in future Harkey development.

Despite these operational hurdles, Coterra Energy remains committed to maintaining its fiscal year 2025 oil production guidance, with the midpoint set at 160 thousand barrels of oil per day. The company plans to continue its focus on debt reduction and operational efficiency, aiming to repay a $1 billion term loan by the end of the year. Both JPMorgan and Piper Sandler have reiterated their confidence in Coterra Energy’s long-term strategy and potential for growth.

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