Civitas Has 'Meaningful' Scale To Drive FCF & Capital Return, Analyst Asserts

BMO Capital Markets analyst Phillip Jungwirth initiated coverage on Civitas Resources Inc CIVI with an Outperform rating and a price target of $95.00.

The analyst believes the company's fundamentals appear much improved, with a more favorable operating environment (lower OFS costs) following higher negative capital efficiency revisions last year. 

Also, the analyst expects crude balances to tighten and support higher oil prices through 2025.

Jungwirth thinks the company's DJ Basin positions it for strong returns and FCF, and the recent foray into the Permian basin will boost asset quality and drive diversification. 

Related: Civitas Resources Forays Into Permian Basin Through ~$5B Assets Buyout

The analyst expects CIVI's free cash flow to remain strong in 2024 and leverage to reduce to <1.0x following the Tap Rock and Hibernia acquisitions. 

The analyst estimates FY23 CFPS of $24.51 ($25.25 strip), increasing to $37.12 ($31.60 strip) in FY24 and $43.54 ($32.06 strip) in FY25, with production anticipated to increase to 280MBoe/d in FY24 (from 212MBoe/d in FY23), aided by Tap Rock and Hibernia buyout.

Earlier this month, the company reported Q2 sales of $660.53 million, beating the consensus of $640.84 million, and EPS of $1.72 exceeded the estimate of $1.68. 

Price Action: CIVI shares are trading higher by 0.64% at $81.80 on the last check Thursday.