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Investing.com - Wolfe Research downgraded Civitas Resources (NYSE:CIVI) from Outperform to Peerperform on Monday. According to InvestingPro data, Civitas currently trades at a P/E ratio of just 4.23 and appears significantly undervalued compared to its Fair Value estimate.
The rating change follows Civitas Resources ’ announced plans to merge with SM Energy, which has altered the firm’s valuation outlook for the oil and gas company. This comes as Civitas maintains a substantial 6.94% dividend yield and is set to report earnings on November 6.
Wolfe Research explained its decision in a research note, stating: "We downgrade CIVI to Peer Perform as we no longer see it trading on standalone fundamentals given its plans to merge with SM Energy where its valuation will be influenced by a deal conversion price where each share of CIVI will be converted into 1.45 shares of SM."
The merger agreement specifies that each Civitas Resources share will convert to 1.45 shares of SM Energy upon completion of the transaction.
The downgrade reflects Wolfe Research’s view that Civitas Resources’ stock price will now be primarily driven by the merger dynamics rather than its independent operational performance.
In other recent news, Civitas Resources is reportedly exploring a potential sale as the company seeks to gain scale within the shale industry. Bloomberg reported that the Denver-based company is working with advisers to consider a merger with a similarly sized or larger peer. This development comes amid the recent departure of CEO Chris Doyle, with the board actively searching for a permanent replacement. Mizuho has maintained its Outperform rating on Civitas Resources, setting a price target of $45.00, and notes that the CEO search remains a significant concern for investors.
Meanwhile, Morgan Stanley has downgraded Civitas Resources from Overweight to Equalweight, with a price target of $40.00, following a significant rally in the stock. The downgrade reflects the company’s outperformance compared to its peers, driven by shareholder-friendly actions such as accelerated share repurchases and resumed buybacks. William Blair has initiated coverage on Civitas Resources with a Market Perform rating, acknowledging recent strategic changes like increased stock repurchases and cost optimization. However, William Blair projects that substantial free cash flow may not materialize until mid-2026.
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