On Tuesday, JPMorgan made an adjustment to Vital Energy Inc.'s (NYSE:VTLE) shares financial outlook by increasing the price target to $50.00 from the previous $49.00, while keeping an Underweight rating on the stock.
The firm anticipates a quarter of operations that aligns with current expectations, with production estimates matching the Street's consensus and slightly exceeding the midpoint of Vital Energy's guidance.
Vital Energy is projected to have a cash flow per share (CFPS) of $6.63, slightly below the Street's estimate of $6.80. Similarly, the estimated EBITDA of $292 million falls short of the $299 million consensus.
The company's oil production forecast for the second quarter is 58.6 thousand barrels per day (MBo/d), which is consistent with the Street's 58.5 MBo/d and above the company's guidance range of 56-60 MBo/d.
The report also noted a challenging natural gas price environment, with an expected pre-hedged price realization of -$0.28 per thousand cubic feet (Mcf). Capital expenditure for the second quarter is estimated at $232 million, below both the Street's expectation of $237 million and the midpoint of Vital Energy's guidance of $225-$250 million. The company is also expected to generate free cash flow (FCF) of $22 million in the same period.
Lease operating expenses (LOE) are predicted to be slightly above the company's guidance, with an estimate of $9.10 per barrel of oil equivalent (boe) compared to the guidance of $8.90 per boe. However, the company has indicated a potential reduction in LOE to approximately $8.50 per boe in the second half of 2024.
Vital Energy highlighted the success of three horseshoe lateral wells in Upton County during the first quarter earnings call. This innovative approach could convert 84 short lateral locations into 42 longer ones, potentially lowering the breakeven cost by $20 per barrel. The company plans to drill additional horseshoe laterals towards the end of 2024 or early 2025.
In terms of mergers and acquisitions, CEO Pigott expressed a readiness to leverage the balance sheet up to 1.5 times, provided there is a clear path to reducing it below 1 times through FCF generation. Vital Energy has shown interest in both the Midland and Delaware Basins, with a particular focus on the southern Delaware Basin for future opportunities.
For the full year 2024, JPMorgan forecasts Vital Energy's oil production at 57.4 MBo/d and total production at 122.4 thousand barrels of oil equivalent per day (MBoe/d), with a capital expenditure of $789 million. This is in comparison to the Street's estimates of 57.8 MBo/d for oil and 121.6 MBoe/d of total production at a capital expenditure of $803 million.
With the recent strip pricing considered, the firm estimates $296 million in FCF for Vital Energy and notes that the company has limited upside exposure to oil prices with approximately 94% of its volumes hedged at around $76 per barrel.
In other recent news, Vital Energy Inc. reported robust financial and operational performance in its first quarter results, with record production levels and exceeding its adjusted free cash flow expectations. The company has been making strategic acquisitions and refinancing debts, which has led to increased interest from long-only investors.
KeyBanc Capital Markets maintained its Overweight rating on Vital Energy stock with a steady price target of $63.00, while Wells Fargo adjusted its outlook and reduced the price target to $54 from $57, keeping an Equal Weight rating.
Piper Sandler, however, painted a more cautious picture, resulting in a "Neutral" rating and a price target of $54.00. The company's future plans include potential mergers and acquisitions, with the focus on free cash flow and leverage. Vital Energy's operational and capital efficiencies, particularly in the Delaware Basin, are expected to propel the company to surpass current estimates.
Despite the positive developments, Vital Energy remains conservative in its production outlook for 2024. These are some of the recent developments in the company's journey.
InvestingPro Insights
In light of JPMorgan's updated financial outlook for Vital Energy Inc. (NYSE:VTLE), examining the company through the lens of InvestingPro data and tips could provide additional context for investors. Vital Energy's market capitalization stands at $1.61 billion, reflecting the size and scale of the company within the energy sector. Despite a challenging natural gas price environment, the company's P/E ratio is notably low at 2.27, which may suggest that the stock is undervalued relative to earnings. Additionally, the P/E ratio adjusted for the last twelve months as of Q1 2024 is slightly higher at 2.93, indicating a change in earnings valuation over time.
From an operational standpoint, two InvestingPro Tips highlight the company's financial pressures: Vital Energy operates with a significant debt burden and is rapidly burning through cash. These factors could pose risks to the company's financial health, especially in a volatile market. However, it's worth noting that analysts predict Vital Inc. will be profitable this year, and the company has been profitable over the last twelve months, which aligns with JPMorgan's expectations of positive cash flow per share and free cash flow generation.
For investors seeking a deeper dive into Vital Energy's financials and operational metrics, InvestingPro offers additional tips and insights. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking access to a comprehensive suite of tools and analyses tailored to enhance investment strategies. With a total of 7 additional InvestingPro Tips available, investors can gain a more nuanced understanding of Vital Energy's market position and future prospects.
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