On Wednesday, UBS initiated coverage on Chord Energy Corp (NASDAQ: CHRD) with a Buy rating and a price target of $168.00. The firm's analysis highlights Chord Energy's improving operational efficiency, particularly following the integration of Enerplus (NYSE:ERF). This efficiency, coupled with a strong financial position that allows for 75% of free cash flow (FCF) to be returned to shareholders, underpins the positive rating.
The UBS analyst cited Chord Energy's attractive valuation and the current gap in the market's pricing, which does not fully reflect the company's robust fundamentals. According to the firm, Chord Energy's shares are trading at a 25-30% discount relative to West Texas Intermediate (WTI) crude prices.
The report further outlines that Chord Energy's strategic moves, including the execution of their consolidation strategy and the adoption of simulfracs and longer laterals, are expected to bolster free cash flow per barrel of oil equivalent (FCF/BOE) and shareholder returns. These steps are anticipated to contribute to a narrowing of the valuation gap.
UBS predicts that as Chord Energy continues to deliver on its operational strategies, the market will recognize its value more accurately, leading to a multiple re-rating. The firm suggests that the price-earnings multiple could improve from approximately 3.0x to 4.0x. This reassessment is projected to support the firm's price target of $168 for Chord Energy's stock.
In other recent news, Chord Energy continues to impress with its financial performance and strategic moves. The company's Q2 2024 results exceeded expectations, with oil volumes reaching the upper end of the guidance and a significant free cash flow of about $263 million. The company also announced an increase in dividends, set at a base of $1.25 per share and a variable dividend of $1.27 per share, representing 75% of the adjusted free cash flow.
Several analyst firms, including Mizuho, RBC Capital, BMO Capital Markets, Jefferies, and BofA Securities, have recently shared their views on Chord Energy. Mizuho maintains a positive stance with an Outperform rating, highlighting the successful integration of Enerplus assets and the potential for improved market perception. RBC, BMO, and BofA also maintain Outperform or Buy ratings, while Jefferies initiated coverage with a Hold rating.
The integration of Enerplus assets has been a significant development for Chord Energy. The company expects to exceed the $200 million synergy target from this integration by the end of 2025, amounting to $700 million. This move is expected to bring about operational consolidation and financial performance improvements.
Chord Energy's strategic approach, operational plans, and financial management have been highlighted as potential catalysts for its future performance. The company's plans for 2025 include reduced spending and increased stock buybacks. The company's recent well performance and production trends are aligning with expectations, according to the analysts.
These recent developments are part of Chord Energy's ongoing efforts to enhance its core assets, improve operational efficiency, and deliver value to shareholders. The company's ability to deliver above-average cash returns and maintain lower-than-average balance sheet leverage has been bolstered by these strategic moves.
InvestingPro Insights
InvestingPro data and tips provide additional context to UBS's bullish stance on Chord Energy Corp (NASDAQ: CHRD). The company's P/E ratio of 6 and P/E ratio (Adjusted) of 8.09 for the last twelve months as of Q2 2024 suggest that the stock may indeed be undervalued, aligning with UBS's assessment of an attractive valuation.
Chord Energy's financial strength is evident in its ability to generate substantial cash flows. An InvestingPro Tip indicates that the company's cash flows can sufficiently cover interest payments, which supports UBS's observation of Chord's strong financial position. Additionally, the company operates with a moderate level of debt, further reinforcing its financial stability.
The company's dividend yield of 8.86% as of the latest data corroborates UBS's point about significant shareholder returns. An InvestingPro Tip highlights that Chord Energy "Pays a significant dividend to shareholders," which aligns with UBS's mention of 75% FCF return to shareholders.
It's worth noting that InvestingPro offers 12 additional tips for Chord Energy, providing investors with a more comprehensive analysis of the company's financial health and market position.
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