How are energy investors positioned?
On Tuesday, Mizuho (NYSE:MFG) Securities adjusted its outlook on Crescent Energy (NYSE:CRGY), reiterating a Neutral stance.
The adjustment comes as the firm anticipates Crescent Energy's upcoming quarterly performance to align closely with consensus estimates in terms of oil volumes and pricing, with earnings before interest, taxes, depreciation, and exploration (EBITDX) slightly below, but free cash flow (FCF) surpassing expectations.
The revised price target of $17 from the previous $16 reflects Mizuho's focus on Crescent Energy's pro-forma guidance for the year 2025, as well as the company's perspective on natural gas prices and fundamentals.
These factors are expected to influence Crescent Energy's capital allocation, particularly towards gas-rich Eagle Ford (NYSE:F) Shale (EFS) areas in the coming years. The financial analysis also takes into account the anticipated completion of Crescent's acquisition of Ridgemar in the first quarter of 2025.
Analysts at Mizuho are monitoring Crescent Energy's integration of its recent acquisitions, including SilverBow Resources (NYSE:SBOW) and Ridgemar, and are awaiting management's commentary on the mergers and acquisitions landscape.
The firm's inclusion in the S&P SmallCap 600 Index and its increased operational scale and market relevance post-acquisitions have been positive for Crescent's stock performance. However, Mizuho cites Crescent's higher financial leverage, at approximately 1.5 times net debt to EBITDX, and its valuation relative to peers as reasons for maintaining a neutral rating.
The financial institution's valuation of Crescent Energy is based on a Net Asset Value (NAV) approach, which has been revised upward to reflect the new price target. Despite the increase, Mizuho's neutral position suggests a cautious stance on the stock, indicating that while there are positive developments, there are also factors that warrant a balanced view.
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