Civitas Resources (CIVI) Valuation Update - May 9

[dan_s]

At the time of this post CIVI was trading at $27.94.

I have updated my forecast valuation model for the Company's strong Q1 2025 results and updated guidance.

Q1 Adjusted Operating Cash Flow was $666 million, $7.19 per share. < TipRanks consensus forecast today is that Civitas's operating cash flow per share will be $29.44 in 2025, which is slightly higher than my forecast. < No upstream company that is this profitable and generating free cash flow should trade for less than 1X operating CFPS.

Since Q1 results beat my forecast, I have raised my current valuation to $72 per share. My valuation is just 2.25 X annualized CFPS.

TipRanks: "In the last 3 months, 13 ranked analysts set 12-month price targets for CIVI. The average price target among the analysts is $47.00." < On May 8th five analysts submitted new price targets to TipRanks that averaged $48. Mark Lear, a highly respected energy sector analyst at Piper Sandler has a price target of $62.

MY TAKE: Prior to Q4 2024, Civitas was paying fixed + variable dividends that were $7.60/share in 2023 and $4.47/share for the first three quarters of 2024. When they announced in Q4 2024 that they were going to stop paying variable dividends and just pay the fixed dividend of $0.50/quarter, the share price got hammered. This happened because the Wall Street Gang HATES IT when any company "changes the rules in the middle of the game". CIVI is just in the Wall Street "Penalty Box". It is an extremely profitable company that is trading at a deep discount to fair value because they pissed off a few analysts.
The current dividend yield is ~7.2%. The Company is using free cash flow to pay down debt and aggressively buying back stock. Over time these two uses of free cash flow will increase the per share value.

My updated forecast/valuation model will be posted to the EPG website this afternoon. Take a hard look at my forecast for 2026.