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On Tuesday, KeyBanc Capital Markets adjusted its stance on Civitas Resources (NYSE:CIVI), downgrading the company’s stock from Overweight to Sector Weight. The decision by analyst Tim Revzan came in the wake of Civitas’ release of its 2025 guidance, which did not meet expectations. According to InvestingPro data, the stock appears undervalued despite trading at an attractive P/E ratio of 4.84 and offering a substantial 10.08% dividend yield.
Civitas Resources, an energy company, recently disclosed its future business outlook, which projects a year-over-year decline in oil production by 4%. This announcement has raised concerns among investors and analysts, leading to the downgrade by KeyBanc. The firm cited several reasons for the adjustment, including the company’s pivot to the Permian Basin, which is expected to result in a slower pace of leverage reduction. Despite these concerns, InvestingPro analysis shows the company maintains a GREAT financial health score, with impressive revenue growth of 59.18% in the last twelve months. Unlock comprehensive insights and 6 additional ProTips with an InvestingPro subscription.
Moreover, the lack of clarity from Civitas’ management regarding media reports of a potential divestiture of the DJ Basin assets has added to the uncertainty surrounding the company’s future. Another significant point of contention was the sudden termination of the Chief Operating Officer, who had been with the company for 22 months. KeyBanc expressed deep concerns over this development, suggesting it might indicate issues beyond a mere cost-cutting strategy by the board.
Despite engaging in discussions with Civitas’ management after the release of the guidance, KeyBanc analysts reported that they still had numerous unanswered questions. The firm stated that it could not justify a defense of Civitas’ shares given the current operational volatility and minimal debt reduction progress.
While the report did acknowledge some positive aspects, such as reductions in well costs and a strong update on the Watkins project, KeyBanc anticipates that the negative factors will overshadow these achievements. The updated estimates from KeyBanc reflect the actual results from the fourth quarter of 2024 but do not alter future quarter projections. Civitas Resources’ stock is expected to face pressure in the coming months as the market responds to the company’s operational challenges and financial strategy. Notably, six analysts have recently revised their earnings estimates upward for the upcoming period. Get detailed analysis and Fair Value calculations in the comprehensive Pro Research Report, available exclusively on InvestingPro.
In other recent news, Civitas Resources is reportedly exploring the sale of its Denver-Julesburg Basin assets in Colorado, which could be valued at over $4 billion, according to Bloomberg. The company is working with a financial adviser to gauge buyer interest and is open to fully divesting from the basin if a compelling offer emerges. This potential sale could provide Civitas with funds to further reduce its debt, currently standing at approximately $4.8 billion, and pursue additional acquisitions. The company has been expanding its operations in the Permian Basin, having acquired assets worth $4.7 billion from NGP Energy Capital Management and additional acreage from Vencer Energy for about $2.1 billion.
Meanwhile, KeyBanc Capital Markets reaffirmed its Overweight rating on Civitas Resources, maintaining a price target of $84.00, despite the company’s shares falling by 33% in 2024. The firm addressed investor concerns about oil production outlook, regulatory challenges in Colorado, and integration of Permian assets, suggesting these issues are either overstated or manageable. KeyBanc expressed confidence in the company’s prospects for 2025, highlighting that these challenges should not impact long-term performance. Investors are keenly awaiting Civitas Resources’ upcoming fourth-quarter earnings report, which is expected to provide further insights into the company’s operational and financial trajectory.
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