On Tuesday, Mizuho reaffirmed its Outperform rating on Civitas Resources (NYSE:CIVI), maintaining a price target of $84.00. The firm's assessment is based on the company's consistent operational performance and positive outlook for 2025, including an increase in share buybacks. Despite anticipating a slight miss in third-quarter 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flow per share (CFPS) compared to the market consensus, the miss is attributed to lower price realizations, which have been marked-to-market with third-quarter benchmark pricing.
Civitas Resources has shown strong execution on its Permian assets, which were acquired the previous year. Year-to-date, the company has increased its underlying oil guidance by approximately 1-2% while reducing both its capital expenditure (capex) and operational expenditure (opex) projections for 2024 by around 3%. This performance is believed to bolster market confidence in Civitas Resources' ability to successfully integrate these assets.
Furthermore, Civitas Resources has revised its cash payout strategy, providing the company with greater flexibility to pursue share buybacks. This strategic move is expected to appeal to investors and contribute positively to the projected significant free cash flow (FCF) growth in the second half of 2024.
The analyst also notes that reduced political and regulatory risks in Colorado, along with the elimination of private equity (PE) seller overhang as of July 2, are favorable developments for the company. These factors, combined with the company's operational achievements and strategic financial management, underpin Mizuho's decision to reiterate Civitas Resources as a top pick with an $84 price target.
In other recent news, Civitas Resources has seen significant developments in its financial and operational performance. JPMorgan has adjusted its outlook on Civitas, raising the stock's price target from $67.00 to $70.00 while maintaining an Overweight rating. The firm anticipates a strong operational quarter for Civitas, projecting oil production to surpass market estimates. However, the bank's estimated earnings before interest, taxes, depreciation, and amortization (EBITDA) for Civitas falls short of market expectations by 3%.
Mizuho Securities revised its price target for Civitas Resources down to $84, maintaining an Outperform rating, while Truist Securities raised the stock's price target to $101, keeping a "Buy" rating. These revisions follow Civitas' strategic acquisitions in the Permian Basin, which have reshaped the company's asset base and extended its inventory duration.
Civitas also announced a substantial share repurchase plan, returning $1.5 billion to shareholders, and committed to generating over $900 million in free cash flow in the second half of 2024. The company's expansion into the Permian Basin boosted production by 12% and oil by 5%, exceeding initial expectations.
InvestingPro Insights
To complement Mizuho's positive outlook on Civitas Resources (NYSE:CIVI), InvestingPro data reveals some compelling financial metrics. The company's P/E ratio of 6.28 suggests that it may be undervalued relative to its earnings, aligning with Mizuho's bullish stance. Additionally, Civitas Resources boasts a remarkable revenue growth of 53.07% over the last twelve months, demonstrating strong operational performance.
InvestingPro Tips highlight that Civitas Resources has raised its dividend for 3 consecutive years and currently pays a significant dividend to shareholders, with a yield of 11.42%. This aligns with the article's mention of the company's revised cash payout strategy, which now allows for greater flexibility in share buybacks.
It's worth noting that while Mizuho maintains an $84 price target, InvestingPro's fair value estimate stands at $79.16, still suggesting potential upside from the current price. Investors seeking more comprehensive analysis can access 7 additional InvestingPro Tips for Civitas Resources, providing a deeper understanding of the company's financial health and market position.
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