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Thursday, JPMorgan raised its price target on Magnolia Oil & Gas Corp (NYSE:MGY) shares from $26.00 to $28.00, maintaining a Neutral rating. The adjustment follows Magnolia’s outperformance against the XOP, an oil and gas exploration and production index, by 28 basis points on Wednesday. This was attributed to the company’s fourth-quarter cash flow surpassing expectations and its 2025 guidance aligning with forecasts.
Magnolia plans to maintain a consistent operation with two rigs and one completion crew, dedicating 75-80% of its efforts to the Giddings area. The company’s strategy includes development drilling in Giddings and a moderate amount of appraisal drilling to further explore new regions of the play. With a market capitalization of $4.76 billion and an impressive gross profit margin of 83%, Magnolia aims for mid-single-digit total production growth in 2025, between 5-7%, with oil production increasing in the low-single digits, all while keeping the capital expenditure budget relatively unchanged year over year. InvestingPro analysis reveals that Magnolia has raised its dividend for 4 consecutive years, currently offering a 2.48% yield.
The company’s CEO, Stavros, indicated on the earnings call that Magnolia anticipates sequential production growth throughout the year, with oil expected to reach approximately 40 thousand barrels of oil per day (MBo/d) by year-end, marking a 3% increase from the previous year. JPMorgan’s updated model projects 39.4 MBo/d of oil production and 96.1 thousand barrels of oil equivalent per day (MBoe/d) in total production for the fiscal year 2025, supported by a capital expenditure of $478 million. These figures slightly exceed the street’s estimates of 39.1 MBo/d for oil production, 95.1 MBoe/d in total production, and $479 million in capital expenditures.
Magnolia is expected to allocate 48% of its EBITDA towards capital expenditures in 2025 based on recent strip pricing. The management also anticipates cash taxes to be between 7-9% for the same year. JPMorgan has consequently adjusted its free cash flow (FCF) estimates for 2025 and 2026 to $456 million and $452 million, respectively, which equates to a 10% free cash flow yield for both years. Following these updates and the year-end 2024 reserve figures, JPMorgan reiterated its Neutral rating and increased its December 2025 price target for Magnolia.
In other recent news, Magnolia Oil & Gas Corporation has announced a 15% increase in its quarterly dividend, marking the fourth consecutive year of such increases. This decision reflects the company’s operational achievements in 2024, including a 9% production growth and a 5% reduction in shares outstanding. Meanwhile, Goldman Sachs has downgraded Magnolia’s stock rating from Buy to Neutral, citing limited catalysts for further stock performance, although the company has achieved significant operational cost savings. On the other hand, JPMorgan has slightly increased its price target for Magnolia to $26.00, reflecting a revised financial outlook despite anticipated shortfalls in cash flow and EBITDA for the fourth quarter of 2024.
Additionally, Magnolia has appointed R. Lewis (JO:LEWJ) Ropp as an independent director to its board, bringing extensive experience in finance and the oil and gas industry. The energy sector, including Magnolia, has seen challenges for short sellers, with significant mark-to-market losses reported, as noted by S3 Partners. Despite these challenges, Magnolia has continued to focus on maintaining low reinvestment rates and achieving production targets. The company’s recent $400 million note offering and expectations of increased free cash flow for the fiscal year 2025 further contribute to its financial strategy.
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