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On Tuesday, Mizuho (NYSE:MFG) Securities adjusted its financial outlook on Civitas Resources (NYSE:CIVI), reducing the stock’s price target from $78.00 to $72.00, while continuing to endorse the stock with an Outperform rating. The change in price target follows Civitas Resources’ announcement that it would scale back its activity in response to market volatility, a move that was previously considered as one of its potential scenarios. According to InvestingPro data, the stock appears undervalued, trading at a P/E ratio of just 4.8x, with analyst targets ranging from $60 to $85.
The company’s first quarter 2025 oil volume guidance did not meet analysts’ expectations, falling more than 6% short. This suggests that Civitas Resources will need to achieve sequential volume growth in subsequent quarters to meet its full-year targets, introducing some execution and timing risks into its 2025 program. This aspect has been a point of contention among investors, despite the company’s impressive revenue growth of 59% over the last twelve months and strong financial health score as reported by InvestingPro.
Despite the lower volume guidance, Civitas Resources has decided to maintain its base dividend, which actually yields an attractive 10.08%. The company has chosen to allocate excess free cash flow (FCF) to strengthen its balance sheet rather than to additional variable dividends or stock buybacks. Mizuho views this decision as a cautious and sensible approach, given the current economic environment. Get deeper insights into Civitas’s financial health and access comprehensive valuation analysis with InvestingPro, which offers exclusive ProTips and detailed research reports for over 1,400 US stocks.
The firm’s analysis indicates that the updated strategy from Civitas Resources is largely neutral to their 2025-2026 free cash flow estimates. The lower net asset value (NAV)-based price target reflects adjustments made in light of the recent guidance and market conditions. Mizuho reaffirms its confidence in Civitas Resources’ performance potential with the maintained Outperform rating, despite the revised price target.
In other recent news, Civitas Resources has been at the center of several significant developments. The company recently disclosed its 2025 guidance, projecting a 4% year-over-year decline in oil production, which did not meet expectations and led to a downgrade by KeyBanc Capital Markets from Overweight to Sector Weight. This downgrade was influenced by operational concerns, including a pivot to the Permian Basin and a lack of clarity regarding potential divestitures of DJ Basin assets. Meanwhile, Bloomberg reported that Civitas is considering selling its DJ Basin assets, which could be valued at over $4 billion, as the company continues to expand its operations in the Permian Basin. This potential sale could provide Civitas with additional funds for acquisitions and debt reduction, as the company’s debt is approximately $4.8 billion. Despite these challenges, KeyBanc recently reiterated an Overweight rating on Civitas, maintaining a price target of $84.00, expressing confidence that current issues are either exaggerated or manageable. The firm believes that concerns about oil production and Permian integration are overstated and that regulatory and debt challenges are unlikely to persist. Investors are now keenly awaiting Civitas’ fourth-quarter earnings report, scheduled for release next month, to gain further insights into the company’s operational and financial trajectory.
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