On Wednesday, Roth/MKM maintained its Buy rating on Riley Exploration Permian Inc. (NYSE:REPX) with a consistent price target of $49.50. The firm adjusted its third-quarter 2024 earnings projections for the company, citing lower than expected crude oil and natural gas prices.
The anticipated prices were set at $83.00 per barrel for crude oil and $2.35 per MMBtu for natural gas. However, the actual prices recorded were $75.27 per barrel and $2.11 per MMBtu, respectively.
The revised estimates for the third quarter of 2024 include earnings per share (EPS) at $1.55, cash flow per share (CFPS) at $2.55, and earnings before interest, taxes, depreciation, and amortization (EBITDA) at $66.4 million.
These figures represent a decrease from the previous estimates of $1.81 for EPS, $2.81 for CFPS, and $72.4 million for EBITDA. Despite these adjustments, the production estimate for the same period remains at 21,527 barrels of oil equivalent (BOE) per day.
Roth/MKM forecasts Riley Exploration to generate $69 million in free cash flow for the year 2024, after accounting for dividends. The firm also highlights the company's low debt leverage, with a debt-to-EBITDA ratio of just 1.2 times. The analyst firm is looking ahead to the third-quarter 2024 update, particularly focusing on the company's drilling and completion results. Riley Exploration had previously guided that it expected to drill 10 to 12 wells, complete 1 to 3, and turn 4 to 7 wells to sales during the quarter.
In the second quarter of 2024, Riley Exploration reported outperformance in legacy well production compared to internal forecasts. The company also noted continued efficiencies and cost savings in drilling and completion activities, attributed to the use of zipper fracks, faster drilling times, and favorable pricing of oilfield services and equipment. Roth/MKM is keen to see if these positive trends will persist.
Riley Exploration is favored by Roth/MKM for several reasons: strong execution on drilling and completions that is projected to yield a 15% year-over-year production increase, the company's low debt leverage, and a robust dividend yield of 5.2%.
In other recent news, Truist Securities adjusted its stock price target for Riley Exploration Permian Inc., reducing it from $48 to $45, while maintaining a positive Buy rating. This change reflects updates in the firm's financial model, including revised price projections and forecasts for 2024 through 2026.
The new price target was determined using a dual-method valuation approach, which includes a 3.5 times multiple on the estimated 2025 EBITDAX of $319 million and a Free Cash Flow to Enterprise Value Yield assumption of 14.0%.
Riley Exploration Permian recently reported a promising start to 2024, with a 4% increase in net oil production from the previous quarter and a 7% rise in operating cash flow before working capital changes. The company successfully converted 40% of that cash flow into free cash flow. Additionally, it acquired 13,900 contiguous net acres in Eddy County, New Mexico, which is expected to enhance its drilling locations and infrastructure.
The company's RPC (NYSE:RES) Power project is advancing, with projections to cover almost all of the power demand for the company's operations in Yoakum County. The company has also drilled seven net wells in the first quarter and plans to resume drilling operations soon. However, it should be noted that the New Mexico project will take time to become fully operational.
InvestingPro Insights
Recent data from InvestingPro adds depth to Roth/MKM's analysis of Riley Exploration Permian Inc. (NYSE:REPX). The company's market capitalization stands at $601.73 million, with a P/E ratio of 5.6, indicating that the stock may be undervalued relative to its earnings. This aligns with Roth/MKM's Buy rating and their positive outlook on the company.
InvestingPro data shows that REPX has maintained a strong revenue growth of 24.09% over the last twelve months, with a robust gross profit margin of 77.0%. These figures support Roth/MKM's confidence in the company's operational efficiency and growth potential.
InvestingPro Tips highlight that REPX has raised its dividend for 3 consecutive years, which is consistent with Roth/MKM's emphasis on the company's attractive dividend yield. Additionally, the tip indicating that REPX is profitable over the last twelve months reinforces the firm's positive stance on the company's financial health.
For investors seeking a more comprehensive analysis, InvestingPro offers 4 additional tips that could provide further insights into REPX's investment potential.
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