On Wednesday, Barclays initiated coverage on Coterra Energy (NYSE:CTRA) stock, issuing an Overweight rating and setting a price target of $36.00. The investment firm highlighted Coterra's diverse asset portfolio, geographic and commodity diversification, and effective capital allocation strategy as key differentiators in the exploration and production (E&P) sector.
Coterra Energy has demonstrated a strategic approach to capital investment, particularly in reallocating resources between its core assets to optimize returns. This year, the company shifted capital from the Marcellus region to more liquid plays due to low gas prices, with plans to reverse this move when prices recover. Barclays notes this flexibility contributes to Coterra's robust free cash flow (FCF), projecting approximately $1.3 billion annually at $75 oil and $2.50 gas.
The firm also commends Coterra's commitment to returning over 50% of its FCF to shareholders through dividends and buybacks, estimating a cash return of 22% over the next three years. Barclays expects the company's organic FCF yield to grow from 7.1% in 2024 to over 12% in 2026, based on strip prices.
Barclays' analysis suggests that Coterra's market valuation does not fully appreciate its diversification and cash generation capabilities. Coterra's Marcellus assets, which are among the lowest cost dry gas assets in the region, are trading at a significant discount compared to peers. By applying an average peer multiple to Coterra's Marcellus EBITDX, Barclays concludes that Coterra's liquid assets, predominantly in the core Permian region, are undervalued.
The firm emphasizes Coterra's resilience in a market characterized by high commodity price volatility and the challenges of predicting price cycles. Coterra's strong balance sheet and lack of hedging position it as an attractive E&P stock for enduring through commodity cycles while providing sustainable and attractive cash payouts to its investors. The $36 price target is based on a blended target multiple of 6.3x 2025E EV/EBITDX and 1.0x NAV.
InvestingPro Insights
As Barclays initiates coverage on Coterra Energy with a favorable outlook, real-time data and expert analysis from InvestingPro provide additional insights into the company's financial health and market position. Coterra Energy's market capitalization stands at $20.96 billion, reflecting its substantial presence in the exploration and production sector. The company's P/E ratio, a measure of its current share price relative to its per-share earnings, is 13, indicating a valuation that could be attractive compared to industry peers.
InvestingPro Tips highlight Coterra's ability to maintain dividend payments for an impressive 35 consecutive years, signifying a reliable return to shareholders—a point that aligns with Barclays' emphasis on Coterra's commitment to cash returns. Additionally, the company's moderate level of debt and capacity to cover interest payments with its cash flows suggest a prudent financial management strategy that could appeal to risk-averse investors. Notably, Coterra is trading near its 52-week high, which may indicate market confidence in its performance and future prospects.
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