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On Thursday, KeyBanc Capital Markets maintained its Sector Weight rating on Civitas Resources (NYSE:CIVI) following a review of the company’s recent well performance. According to InvestingPro data, the company appears undervalued based on its Fair Value analysis, with analysts setting price targets ranging from $42 to $77. KeyBanc highlighted impressive results from Civitas’s four-mile laterals in Watkins, noting that these wells have demonstrated a productivity uplift in the first six months of production, surpassing the basin average and other local wells on a per 1,000-foot basis.
The analysis of a set of 13 four-mile wells completed by Civitas in June 2024, which were the first wells over 20,000 feet in length within the basin, showed that they are not only more productive but also approximately 17% more cost-efficient per foot compared to traditional two-mile laterals. This operational efficiency is reflected in the company’s strong financial metrics, with a robust gross profit margin of 73.5% and significant free cash flow yield of 27%. Despite the limited inventory of four-mile laterals, Civitas is expected to continue developing three-mile laterals, with analysts predicting the company will increasingly focus on extra-long (XL) laterals.Get deeper insights into Civitas’s financial health and 6 additional exclusive ProTips with InvestingPro, including detailed analysis of the company’s operational efficiency and growth potential.
KeyBanc’s assessment underscores Civitas’s high-quality acreage and drilling capabilities. The firm believes that Civitas’s management has successfully shifted investor focus from the company’s balance sheet to the quality of its resources, which could be a key factor in the company’s performance in the coming year. The company maintains a debt-to-equity ratio of 0.69 and pays a substantial dividend yield of 11.46%. However, KeyBanc anticipates that Civitas will need to address its leverage, suggesting that news on deleveraging will be critical by 2026.
In other recent news, Civitas Resources has been the subject of several noteworthy developments. Moody’s Ratings affirmed Civitas’ Corporate Family Rating at Ba3, maintaining a stable outlook due to successful integration of acquisitions in the Permian region and amended financial policies prioritizing debt reduction. Meanwhile, BMO Capital Markets downgraded Civitas’ stock rating from Outperform to Market Perform, adjusting the price target to $42 from $50, citing concerns over the company’s financial projections amid a revised commodity price forecast. KeyBanc maintained a Sector Weight rating on Civitas, highlighting the need for strategic asset sales and efficient cash allocation to stabilize the company’s position.
Truist Securities also adjusted its outlook, lowering the price target to $77 from $80 but retaining a Buy rating, expressing optimism about the company’s long-term valuation despite recent market challenges. JPMorgan analysts downgraded Civitas from Overweight to Neutral, reducing the price target to $62, following the company’s strategic shift towards mergers and acquisitions and debt reduction over cash returns. Civitas confirmed its ongoing commitment to a quarterly $0.50 per share base dividend while focusing on reducing leverage. These recent developments reflect a period of strategic reassessment for Civitas Resources amid changing market conditions.
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