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On Wednesday, Truist Securities adjusted its outlook on Civitas Resources (NYSE:CIVI) shares, reducing the price target to $77 from $80, while sustaining a Buy rating on the stock. The adjustment follows a notable decline in Civitas’ share price, attributed to the market’s adverse reaction to the company’s guidance and the timing of a recent acquisition. The stock has fallen sharply, dropping 21% in the past week and currently trades near its 52-week low of $40.26. According to InvestingPro data, the stock appears undervalued based on its Fair Value analysis.
The securities firm noted that Civitas shares significantly underperformed the previous day, which was influenced by investor skepticism regarding the company’s future performance and strategic decisions made during a particularly uncertain market period. Truist Securities acknowledged that while Civitas’ operational plan and its recent acquisition are expected to be beneficial in the long term, the announcement came at a time characterized by rash market reactions. InvestingPro analysis shows the company maintains strong fundamentals with a 73.5% gross profit margin and offers a substantial 12.3% dividend yield.
Despite the price target reduction, Truist Securities remains optimistic about Civitas’ valuation, citing that the company’s shares are currently trading at less than two times its enterprise value to EBITDA ratio and offer a free cash flow yield of over 25%. The research firm believes that the company’s ability to quickly stabilize its operations and finances will be crucial in justifying a significantly higher valuation.
Truist Securities emphasized the potential for substantial gains if Civitas’ assets in the Permian and DJ basins perform according to expectations. The firm’s analysts are monitoring Civitas closely to see how swiftly it can demonstrate stability and capitalize on its operational strategy to enhance shareholder value.
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 its revenue reached $1.29 billion, slightly below the anticipated $1.3 billion. The earnings miss was accompanied by a strategic shift towards mergers and acquisitions (M&A) and debt reduction, as highlighted in the company’s recent announcements. Civitas Resources confirmed a $300 million acquisition in the Midland Basin and set a target to reduce debt by $800 million by 2025. Despite these strategic changes, the company maintained its quarterly dividend of $0.50 per share.
JPMorgan analysts responded to these developments by downgrading Civitas Resources from Overweight to Neutral, lowering the price target from $68.00 to $62.00. The analysts noted the company’s reorientation towards debt reduction and M&A as a departure from its previous focus on share buybacks and cash returns to shareholders. Civitas Resources also announced a 10% workforce reduction as part of operational streamlining efforts. The company plans to maintain a base dividend of $2 per share annually and projects a free cash flow of $1.1 billion for 2025, assuming a $70 WTI oil price.
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