Bullish indicating open at $55-$60, IPO prices at $37
On Monday, Citi analysts announced a downgrade of Vital Energy (NYSE:VTLE) from Buy to Neutral, significantly reducing the price target to $17.00 from the previous $36.00. The downgrade comes as the oil market experiences a downturn, with West Texas Intermediate (WTI) crude sliding to $62, which is below the marginal cost estimate of approximately $65. According to InvestingPro data, VTLE’s stock has declined over 75% in the past year, with the current price of $13.95 trading near its 52-week low of $13.39. The stock’s RSI indicates oversold conditions, suggesting potential for a technical rebound.
Citi’s analysis suggests that it is an opportune time to invest in low-cost producers as oil trades below the marginal cost. This strategy is reflected in the upgrade of Diamondback Energy (NASDAQ:FANG) to Buy status, following a notable decline in its stock value year-to-date and over the trailing twelve months. The firm believes that the current market conditions offer a chance to purchase high-quality exploration and production (E&P) stocks at a discount, with Diamondback Energy’s stock price now implying a WTI price of around $58 into perpetuity.
The decision to downgrade Vital Energy and California Resources Corporation (NYSE:CRC) to Neutral is influenced by expectations that higher cost, smaller-cap stocks may take longer to rebound due to macroeconomic uncertainties, including the ongoing trade war and OPEC’s actions. Despite acknowledging CRC’s long-term strategies, such as carbon capture, utilization and storage (CCUS) and power growth, Citi points out that the company’s core production remains in the higher-cost California region.
For Vital Energy, Citi expects the market to shift its focus from the company’s hedging activities to its relative break-even point. This change in focus is anticipated as investors consider the broader implications of the company’s financial health and potential for recovery in a fluctuating oil market.
In other recent news, Vital Energy’s fourth-quarter financial results have drawn significant attention. The company reported a net loss of $359.4 million, impacted by a non-cash impairment loss, despite achieving record production levels. Earnings per share were $2.30, surpassing analyst expectations by $0.17, though revenue fell short of the consensus estimate, coming in at $534.37 million compared to the anticipated $546.9 million. Analysts from Raymond (NSE:RYMD) James and Citi have adjusted their price targets for Vital Energy, with Raymond James lowering it to $30 and Citi to $36, while maintaining their Outperform and Buy ratings, respectively. Both firms noted the company’s updated guidance, which includes a decrease in capital expenditure and a mixed production outlook for 2025.
JPMorgan, on the other hand, raised its price target to $34, citing strong operational results and higher-than-expected natural gas pricing, despite maintaining an Underweight rating. The firm highlighted Vital Energy’s focus on stable production volumes and free cash flow generation to reduce debt. Mizuho (NYSE:MFG) Securities also increased its price target to $38, maintaining a Neutral rating, and emphasized the company’s strategic shift towards organic inventory expansion and cost reduction for 2025. Vital Energy plans to reduce drilling and completion costs and aims for a capital expenditure of approximately $900 million next year to maintain oil production levels. The company’s liquidity remains solid, with $880 million drawn on its credit facility and cash equivalents of $40 million as of the end of 2024.
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