Crescent Energy (CRGY) Valuation Update - May 6

[dan_s]

Crescent Energy uses the Successful Efforts method of accounting, which is more conservative than the Full Cost method used by most companies of this size. Under the Successful Efforts rules, Exploration expense is a current expense and they have to use the FAS 121 rules for impairment of individual assets. Add to this the extremely misleading SEC rules for hedges and Reported Net Income is a worthless number.

Crescent Energy's Q1 "reported" net income was a loss $2.15 million because it included $45.6 million impairment losses and $80.2 million of non-cash mark-to-market loss on their hedges.
The Company's Adjusted Net Income of $143 million and Adjusted Operating Cash Flow of $432.4 million beat my forecast. Q1 production was also higher than my forecast.

They did lower their 2025 production guidance slightly due to the impact of a non-core assets, the proceeds from which paid off some debt ( a good thing). Production mix of 42% natural gas, 18% NGLs and 40% crude oil is also a PLUS for me.

I have updated my forecast/valuation model for Q1 results, fresh guidance and updated hedges.
My stock valuation stays at $19.00/share, which is just 3X annualized operating cash flow.

TipRanks consensus forecast for 2025 is actually higher than my forecast. TipRanks forecast is $6.60 operating CFPS this year, which compares to my forecast of $6.17. < There is nothing I see than justifies CRGY trading for less than 1.5 X CFPS. It is free cash flow positive, pays a decent dividend and it has lots of "Running Room" in South Texas

TipRanks: "In the last 3 months, 9 ranked analysts set 12-month price targets for CRGY. The average price target among the analysts is $16.25." < The 9 price targets range from $12 to $21.

At the time of this post CRGY was trading at $7.82. Dividend yield is ~6.1% at that price.

My updated forecast/valuation model will be posted to the EPG website this afternoon.

[dan_s]

On April 22 Crescent Energy announced the closing of the sale of non-operated Permian Basin assets to a private buyer for $83 million in cash, subject to customary post-closing purchase price adjustments. The assets are located in Reeves County, Texas and had projected full-year 2025 production of approximately 3 Mboe/d (~35% oil). Proceeds from the sale will be used to reduce outstanding borrowings on the Company’s revolving credit facility. The transaction has an effective date of December 31, 2024, and Crescent plans to update its 2025 outlook to reflect the divestiture alongside its first quarter 2025 financial and operating results.

"We are pleased to announce the closing of this accretive asset sale, which is part of our $250 million pipeline of non-core asset divestitures announced during our year-end earnings," said Crescent CEO David Rockecharlie. "As both investors and operators, we continually evaluate opportunities to enhance our portfolio, simplify our business and deliver value for investors."

[dan_s]

Shareholder Return
Crescent's long-standing return of capital strategy includes a fixed dividend and a previously authorized share
buyback program for the repurchase of up to $150 million (the "Share Repurchase Program"). For the first
quarter of 2025, the Company's Board of Directors (the "Board") approved a cash dividend of $0.12 per
share. The first quarter dividend is payable on June 2, 2025, to shareholders of record as of the close of
business on May 19, 2025. Any payment of future dividends is subject to Board approval and other factors.

Based on my forecast, Crescent Energy should generate close to $600 million of free cash flow in 2025, which is more than enough to cover their fixed dividends of $0.48/share (~$125 million this year).

During 2025, Crescent has repurchased approximately $30 million of shares of Class A common stock at a
weighted average share price of $8.26. Repurchases of shares of the Company's Class A common stock
under the Share Repurchase Program may be made by the Company from time to time in the open market, in
a privately negotiated transaction, through purchases made in accordance with Rule 10b5-1 of the Exchange
Act or by such other means as will comply with applicable state and federal securities laws. The timing of any
such repurchases will depend on market conditions, contractual limitations and other considerations. The
program may be extended, modified, suspended or discontinued at any time, and does not obligate the
Company to repurchase any dollar amount or number of shares.