Civitas Resources (CIVI) Valuation Update - March 20

[dan_s]

I just finished my review of the updated Civitas profile that was prepared by one of our three super smart MBA. Steven has been working up profiles for me for more than five years since he graduated from SMU. He does a great job.

Civitas is one of the grossly oversold mid-caps in our Sweet 16 Growth Portfolio.
> 2024 was a transformative year for this upstream company. Production increased by 62.8% year-over-year to 344,622 Boepd.
> It was also another very profitable year: Civitas reported Net Income of $838.7 million ($8.93/share) with $3,204.5 million ($34.11/share) of Adjusted Operating Cash Flow and just under $1.3 billion of free cash flow.
> Most of the production growth was a result of the large Midland Basin Acquisition (from Vencer Energy) that closed on January 2, 2024. Civitas did report steady production growth each quarter in 2024 as a result of their drilling program.
> Current production mix is approximately 46% crude oil, 28% natural gas and $26% NGLs.
> In 2025 production will be down in Q1 due to weather related well completion delays, but full year revenues should be flat at approximately $5.2 billion as higher natural gas and NGL prices should offset lower realized oil prices. Production should increase in 2H 2025 to an exit rate over 250,000 Boepd.

My updated current valuation is $72/share; $3 lower than my previous valuation.

TipRanks: "In the last 3 months, 12 ranked analysts set 12-month price targets for CIVI. The average price target among the analysts is $61.36." The 12 price targets range from $42 to $77. < The six price targets that have been updated in March (after the Company's updated guidance) range from $42 to $66.

At the current share price of $35.84, the stock is trading at less than 2X TipRanks' consensus operating cash flow per share forecast of $32.52. < My updated 2025 Operating Cash Flow per share forecast is $30.04 per share.

Harry, our "Petroleum Economist", has CIVI rated at #21 of the 84 companies he follows.

Civitas does have some work to do on its balance sheet, which they are addressing, but this company's stock does not justify trading at a PE ratio under 5.
> It has a lot of high-quality running room in two of the best oil & gas basins in the U.S.
> This year's drilling program, designed to hold production flat, will generate a lot of free cash flow.
> Their base dividend and capex program is more than covered by operating cash flow.
> I like the production mix, which insulates the company from weaker oil prices this year.

[dan_s]

Our updated profile and my updated forecast/valuation model for Civitas has been posted to the EPG website.

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