Civitas Resources (CIVI) Valuation Update - Feb 26

[dan_s]

At the time of this post CIVI was trading at $39.40. Getting some bids today after a big selloff yesterday.

TipRanks: "In the last 3 months, 12 ranked analysts set 12-month price targets for CIVI. The average price target among the analysts is $69.40.< 8 of the 12 analysts have updated their price targets since Civitas announced Q4 results and 2025 guidance. The new price targets range from $62 to $80 with an average of $70.50.

WHY DID THE SHARE PRICE DECLINE SO MUCH YESTERDAY???
MY TAKES:
> Lots of investors and (more importantly) fund managers purchased the stock for high dividends. Civitas was paying a very nice "Fixed + Variable" dividend that was $7.60 in 2023 and $4.47 during the first three quarters of 2024. When the Company announced in early November 2024 that they were only going to pay the fixed ($0.50/share) quarterly dividend, the stock sold off from $54 until it found support at around $44.
> The BOD said that free cash flow after the fixed dividend was going to be used for stock buybacks and debt repayment.
> I believe some investors hoped that the BOD would go back to the "Fixed + Variable" dividends in 2025.
> Two days ago, the Company announced that they were committed to keep paying the fixed dividend ($2.00/year), but the remaining free cash flow would go toward paying down debt. The investors hoping for a return to higher dividends hit the sell button.
> With the oil price also down yesterday, the selloff started to trigger stop loss orders and the selloff was underway.
> With WTI still weak today and the MAR25 NYMEX contract for HH Ngas do what it does at the end of each month, Buyers for CIVI are hard to find.

On Monday Civitas did announce solid Q4 results that were actually higher than my forecast. However, their 2025 guidance is for about a 37,000 Boepd decline in production from Q4 to Q1 (352,000 Boepd to ~315,000 Boepd), primarily due to weather related issue and the timing of well completions.

The Company does expect production to bounce back in Q2 and that production would average ~330,000 Boepd in 2025.
I was using 350,000 Boepd in my forecast model.

I have updated my forecast/valuation model based on their guidance, which is still quite good.
> Operating cash flow should be close to $3 billion, down from $3.2 billion in 2024.
> Free cash flow should be over $1.1 billion. With less than $200 million for payment of quarterly dividends, Civitas will have over $900 million for debt reduction and stock buybacks. < Civitas does not have a near-term debt problem.

Only because of the lower production guidance, my valuation of CIVI declines by $9.00 to $75.00.

FWIW my 2025 forecast is now very close to what TipRanks is showing for the consensus forecast: Net Income of $8.93 per share and Operating Cash Flow per share of $30.34.

Bottomline: With $900 million of free cash flow after dividends, I don't see anything that justifies CIVI trading below 2X operating CFPS.

Spend a few minutes going through the Company's February slide deck.

[KGardiner]

I think this means that Drill Baby Drill is Dead!

If any producer thinks drilling themselves into oblivion will ever be acceptable again, just look at Civitas!

Imagine a company wanting to pay down their debt, only to be rewarded by a massive selloff because investors demand most of the FCF.

Personally, low stock prices, debt reduction and stock buybacks, lots of FCF and a reasonable balance sheet seem like a great place to be. I took advantage of the sale.

Kevin

[ChuckGeb]

I added on the dip as well. This is a long term investors market, lots of values out there. Just look at the buybacks particularly in the Canadian companies. They are quietly buying the dips and shareholders will be rewarded. The Green New Deal is dead.

[aja57]

Looks like there is no joy in Mudville..
NEW YORK, NY / ACCESS Newswire / February 27, 2025 / Levi & Korsinsky notifies investors that it has commenced an investigation of Civitas Resources, Inc. ("Civitas Resources")
CIVI
concerning possible violations of federal securities laws.

On February 24, 2025, Civitas announced its financial results for the fourth quarter and full year 2024, including both revenue and non-GAAP EPS that missed consensus estimates. Civitas also announced a 10% reduction in its workforce across all levels and the termination of its Chief Operating and Chief Transformation Officers, effective immediately.

[mikelp]

trap door opened in the oil patch
weekly charts are U-G-L-Y

[dan_s]

On 3-6-2025 Mark Lear at Piper Sandler rated CIVI a Buy with a price target of $66.00

Mark Lear is a highly respected energy sector analyst, and his price targets are usually relatively conservative.

TipRanks today: "In the last 3 months, 12 ranked analysts set 12-month price targets for CIVI. The average price target among the analysts is $64.82."

Rising natural gas prices will offset most of the impact of lower oil prices for Civitas this year. I will be taking a hard look at Civitas after I return from vacation, but I don't see anything that justifies the current share price.

First Call's current price target is $64.87.

Neal Dingmann at Truist Financial maintains a $77.00 price target for CIVI.

The BOD's recent decision to reduce the dividend and use more free cash flow to reduce debt is not a bad thing. Reducing debt makes the equity more valuable.