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On Tuesday, Mizuho (NYSE:MFG) Securities adjusted its stance on EOG Resources (NYSE:EOG), a $71 billion market cap energy company, downgrading the stock rating from Outperform to Neutral and reducing the price target to $140 from the previous $148. The revision follows the firm’s reassessment of EOG’s net asset value (NAV), taking into account the year-end 2024 disclosures. According to InvestingPro data, nine analysts have recently revised their earnings estimates downward for the upcoming period, with analyst targets ranging from $115 to $175.
Mizuho’s new valuation reflects a decrease in anticipated cash margins per barrel of oil equivalent (boe) based on the guidance for 2025 as opposed to the levels normalized for commodity prices from 2020 to 2024. Despite these concerns, EOG maintains robust financials, with InvestingPro analysis showing the company holds more cash than debt and maintains strong interest coverage ratios. Additionally, the firm has revised downward its estimates for both developed and undeveloped reserves. This adjustment is a response to recent trends in well productivity in the Delaware and Eagle Ford regions, as observed in the ARCHIE data set.
EOG Resources has seen considerable outperformance relative to its large-cap peers, with a roughly 10% lead since early 2024. This performance has led to the stock trading at approximately a 0.5x premium based on Mizuho’s updated estimates, a notable shift from a 0.5x discount around 15 months prior.
Despite the downgrade, Mizuho acknowledges that EOG Resources still presents an estimated 13% upside to the newly set NAV-based price target. However, this potential is modest when compared to the average upside of around 36% for other large-cap companies in the oil sector. Consequently, Mizuho has decided to adopt a more cautious approach, moving to the sidelines with the Neutral rating.
In other recent news, EOG Resources reported its fourth-quarter 2024 earnings, which exceeded expectations with an earnings per share (EPS) of $2.74, surpassing the forecasted $2.57. However, the company faced challenges as its revenue fell short, coming in at $5.6 billion against an anticipated $5.88 billion. Despite the earnings beat, the company’s stock experienced a decline. In addition, UBS analysts reduced EOG Resources’ price target from $165 to $160 while maintaining a Buy rating, citing mixed fourth-quarter results and unmet first-quarter projections. Benchmark analyst Subash Chandra kept a hold rating on EOG Resources, with projected earnings aligning with market consensus. The analyst expects first-quarter EPS and EBITDA to be $2.77 and $3.1 billion, respectively. UBS highlighted EOG Resources’ strong financial position, noting its robust balance sheet and asset base, which are anticipated to become more capital efficient in 2025. The firm also emphasized EOG’s commitment to shareholder returns through stock buybacks.
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