EU and US could reach trade deal this weekend - Reuters
On Wednesday, JPMorgan analysts downgraded Civitas Resources (NYSE:CIVI) stock from Overweight to Neutral and reduced the price target from $68.00 to $62.00. The adjustment came after Civitas shifted its strategic priorities following its fourth-quarter earnings report. According to InvestingPro data, the stock is currently trading at an attractive P/E ratio of 4.8x and appears significantly undervalued based on comprehensive Fair Value analysis. The company, which previously emphasized free cash flow (FCF) generation, significant cash return to shareholders, debt reduction, and mergers and acquisitions (M&A), has now reoriented towards M&A and debt reduction over cash returns.
Civitas Resources had maintained that there were no plans for near-term M&A activities, focusing instead on share buybacks at a discounted valuation. However, the fourth-quarter earnings announcement revealed a $300 million Midland Basin bolt-on acquisition and a change in strategy towards debt reduction, targeting a reduction of $800 million by 2025. This pivot away from share repurchases is expected to remove an incremental buyer from the market, a factor previously anticipated to support the company’s share price.
The analysts noted that while debt reduction is a positive move for Civitas in the long run, they had believed the company could balance both debt reduction and a share repurchase program. Despite the stock’s underperformance on the prior day, falling 18.2% compared to the XOP’s 2.4% drop, JPMorgan does not foresee a clear path for the stock to re-rate in the near term. InvestingPro data shows the stock is trading near its 52-week low of $40.26, with a substantial 21% decline in the past week alone. Subscribers to InvestingPro can access 10+ additional exclusive insights about Civitas’s current market position.
Civitas Resources has confirmed that it will continue to pay its quarterly $0.50 per share base dividend, which InvestingPro calculates yields an impressive 12.3%. However, the analysts had modeled approximately $590 million in share buybacks for 2025 based on the company’s former cash return formula, which will no longer be the case. The company’s new focus will be on reducing leverage to around 0.75 times over the next several years, as indicated in the comments from the earnings call. Despite recent challenges, InvestingPro’s analysis indicates the company maintains a GOOD overall financial health score, supported by strong revenue growth of nearly 50% in the last twelve months.
In other recent news, Civitas Resources reported its fourth-quarter 2024 earnings, missing analyst expectations with earnings per share (EPS) of $1.78, compared to a forecast of $1.94. The company’s revenue also fell short of projections, reaching $1.29 billion against the anticipated $1.3 billion. Despite generating a strong free cash flow of $1.3 billion for the year, Civitas announced a 10% reduction in its workforce as part of an operational streamlining effort. The company returned over 70% of its free cash flow to shareholders through dividends and share repurchases. Additionally, Civitas has set a free cash flow projection of $1.1 billion for 2025, assuming a $70 WTI oil price, and plans capital investments of $1.8 to $1.9 billion. The company aims to achieve a net debt reduction target of $4.5 billion while maintaining a base dividend of $2 per share annually. These developments come amid challenges such as volatile oil prices and operational adjustments impacting earnings expectations.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.