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On Monday, KeyBanc analyst Tim Revzan maintained a Sector Weight rating on Civitas Resources (NYSE:CIVI), following a notable decline in the company’s shares in the days after its earnings report. Civitas Resources’ stock dropped approximately 22% in the four days after the Monday evening earnings release, compared to a 3% decrease in the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which tracks the energy and production sector.
Revzan addressed the company’s performance and the analyst firm’s recent downgrade, which garnered significant attention and prompted numerous client inquiries regarding Civitas’ strategy, leverage, asset sales, and cash returns. The analyst’s concerns about debt appear warranted, as InvestingPro analysis shows the company’s current ratio at 0.45 and debt-to-equity ratio at 0.69, while short-term obligations exceed liquid assets.
Looking ahead, Revzan suggested that Civitas Resources should concentrate on a few strategic moves to stabilize and improve its position. These include accelerating asset sales to achieve a debt-to-EBITDA ratio of 1x, allocating free cash flow in a way that minimizes share repurchases, and focusing on drilling execution that supports the company’s 2025 guidance while increasing long-term capital efficiency.
The reiteration of the Sector Weight rating by KeyBanc comes as Civitas Resources faces a challenging period, with its recent performance lagging behind its peers in the energy sector. The company’s future steps, as outlined by the analyst, will be closely watched by investors seeking signs of improvement and strategic adjustments.
In other recent news, Civitas Resources reported its fourth-quarter 2024 earnings, which fell short of analyst expectations. The company posted an earnings per share (EPS) of $1.78, missing the forecasted $1.94, and generated revenue of $1.29 billion, slightly below the anticipated $1.3 billion. This earnings miss has raised concerns among investors, contributing to a 7.16% drop in the company’s stock in premarket trading. Civitas also announced a strategic shift, focusing on mergers and acquisitions (M&A) and debt reduction, following a $300 million acquisition in the Midland Basin. As part of this strategy, Civitas aims to reduce its debt by $800 million by 2025.
Analysts have reacted to these developments with mixed views. Truist Securities maintained a Buy rating for Civitas, despite lowering its price target from $80 to $77. They cited the company’s strong asset base and operational potential as positive factors. Conversely, JPMorgan downgraded Civitas from Overweight to Neutral, reducing the price target from $68 to $62, due to the company’s pivot away from share repurchases. Civitas confirmed its commitment to continue paying a quarterly dividend of $0.50 per share, while also announcing a 10% workforce reduction to streamline operations. These recent developments highlight Civitas’ focus on stabilizing its financial position and adapting to changing market conditions.
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