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On Thursday, JPMorgan raised the price target for Gulfport Energy (OTC:GPORQ) (NYSE: GPOR) shares to $175 from $162, while maintaining an Overweight rating on the company. The firm anticipates a solid operational performance from Gulfport Energy, despite cash flow per share (CFPS) and earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates being 8% below the sell-side consensus after adjustments for market conditions.
In the previous quarter's earnings, Gulfport Energy management projected approximately $25 million in capital expenditure (capex) savings for fiscal year 2024. However, the company did not alter its capex budget at that time as it was deciding on the reallocation of these savings.
With recent macroeconomic challenges, JPMorgan expects the management to opt for a reduction in the capex budget rather than increasing activity, which should keep the fiscal year 2024 capex close to the lower end of the forecasted range.
Gulfport Energy has achieved significant efficiency gains in the field throughout 2024. JPMorgan's analysis suggests that the company could maintain flat production volumes in 2025 with lower year-over-year capex. The firm's model predicts $320 million in free cash flow (FCF) for fiscal year 2025, based on recent strip pricing, which would result in a 12% FCF yield.
A key focus for the third quarter will be the initial data from Gulfport Energy's four-well pad in the Utica condensate window located in Harrison County. This pad is in proximity to EOG's Xavier pad, which has shown promising initial production rates. While Gulfport Energy's wells are expected to have lower initial production rates due to a managed pressure drawdown program, they could benefit from more gradual declines over time.
Gulfport Energy has approximately two years of drilling inventory in the condensate window, and successful drilling could provide upside potential to oil production and net asset value (NAV) estimates. For the quarter, JPMorgan estimates CFPS at $8.16 and EBITDA at $161 million, with production forecasts topping the sell-side consensus. The firm also expects $46 million in buybacks for the quarter, including shares purchased directly from a selling shareholder.
JPMorgan concludes that Gulfport Energy is likely to continue its strategy of returning the majority of its FCF to shareholders, excluding acquisitions, which supports the potential for significant buybacks in the second half of 2024. The updated model with recent strip pricing underpins the firm's decision to maintain its Overweight rating and raise the price target to the new $175 level.
In other recent news, Gulfport Energy has been making significant strides in its financial operations. The company reported a robust $164 million in adjusted EBITDA and a substantial $20 million in adjusted free cash flow during its second quarter 2024 earnings call. Furthermore, Gulfport Energy has initiated a cash tender offer to purchase all outstanding 8.0% Senior Notes due 2026, and issued $650 million in 6.7% Senior Notes due in 2029.
The company also expanded its credit facility from $900 million to $1.0 billion. In addition, Gulfport Energy entered into an agreement to buy back 170,000 shares of its common stock for approximately $24.9 million, as part of its ongoing $650 million share repurchase initiative.
On the analyst front, Evercore ISI downgraded Gulfport Energy's stock from Outperform to In Line, maintaining a price target of $170.00. The firm noted potential challenges for the company in scaling up and attracting a broader shareholder base.
Meanwhile, CapitalOne reaffirmed its Overweight rating for the company, and KeyBanc upgraded the company's share price target to $165, citing strong free cash flow generation and potential for organic earnings growth. These are the recent developments for Gulfport Energy.
InvestingPro Insights
To complement JPMorgan's analysis, recent data from InvestingPro offers additional perspective on Gulfport Energy's financial position. The company's market capitalization stands at $2.68 billion, with a notably low P/E ratio of 3.61, suggesting the stock may be undervalued relative to its earnings. This aligns with JPMorgan's Overweight rating and increased price target.
InvestingPro Tips highlight that Gulfport Energy has been profitable over the last twelve months, with a strong return over the past five years. This supports JPMorgan's positive outlook on the company's operational performance. However, it is worth noting that analysts anticipate a sales decline in the current year, which could explain the firm's expectation of potential capex reductions.
The company's revenue for the last twelve months as of Q2 2024 was $896.58 million, with a high gross profit margin of 56.26%. This robust profitability metric underscores Gulfport Energy's operational efficiency, which JPMorgan also emphasized in their report.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide further insights into Gulfport Energy's financial health and market position.
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