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Civitas Resources, Inc. (CIVI - Free Report) is facing falling WTI crude prices heading into 2025. This Zacks Rank #5 (Strong Sell) may struggle to grow earnings if crude prices continue to decline.
Civitas Resources is an independent oil and natural gas producer in the Denver-Julesburg and Permian basins in the United States. It has a market cap of $4.86 billion.
Another Miss for Civitas in the Second Quarter of 2024
On Aug 1, 2024, Civitas Resources reported its second quarter 2024 results and missed on the Zacks Consensus for the second quarter in a row. Earnings were $2.06 versus the consensus of $2.93.
Civitas is an “oily” producer, meaning it focuses on oil and not natural gas. Crude oil accounted for 87% of total revenue in the quarter.
Sales of crude oil, natural gas, and natural gas liquids (“NGL”) were $1.3 billion which was consistent with that of the first quarter.
Permian Basin sales volumes rose about 12% from the first quarter, driven by strong production from recent Delaware and Midland Basin wells.
Adjusted free cash flow in the quarter was $235.4 million.
Civitas is Shareholder Focused with a Buyback and Dividend Plan
The company is shareholder focused. It returned capital to shareholders in the quarter of $274 million including dividends of $1.50 per share and share repurchases of $125 million. It pays a strong base dividend and a variable dividend of at least 50% of its free cash flow.
Beginning in the third quarter, the variable return of capital will be allocated through a combination of common stock repurchases and dividends, with the quarterly allocation between the two determined by management and the Board.
The quarterly base dividend remains at $0.50 per share. That’s currently a yield of 3.9%.
Earnings Estimates Get Cut
With WTI crude back trading under $70, it’s not surprising that the analysts have been cutting their earnings estimates on Civitas.
For 2024, 1 estimate was cut in the last 30 days but 4 were cut prior to that, in the last 60 days. The full year earnings estimate has fallen to $10.05 from $12.13.
However, it is still earnings growth of 11.4% over last year, when Civitas made $9.02.
Estimates have also been cut for 2025 in the last 60 days. 6 earnings estimates were cut during that time, pushing the Zacks Consensus Estimate down to $10.69 from $13.06 just 60 days prior. That’s still earnings growth of 6.4%.
However, it doesn’t look good on the chart. If WTI crude prices fall further, look for earnings to continue to fall.
Image Source: Zacks Investment Research
Is Civitas a Value Trap?
Shares of Civitas have fallen sharply over the last year but earnings are still expected to grow this year and next (for now).
Image Source: Zacks Investment Research
Civitas now has a forward P/E of just 5.1. But a price-to-earnings ratio that is extremely low can indicate that a stock is a value trap.
With the Saudis signaling they are going to increase production starting in Dec 2024, there is a lot of uncertainty about crude prices.
Investors might want to stay on the sidelines and wait for clarification on crude prices before diving into an oil and natural gas producer like Civitas.
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Bear of the Day: Civitas Resources (CIVI)
Civitas Resources, Inc. (CIVI - Free Report) is facing falling WTI crude prices heading into 2025. This Zacks Rank #5 (Strong Sell) may struggle to grow earnings if crude prices continue to decline.
Civitas Resources is an independent oil and natural gas producer in the Denver-Julesburg and Permian basins in the United States. It has a market cap of $4.86 billion.
Another Miss for Civitas in the Second Quarter of 2024
On Aug 1, 2024, Civitas Resources reported its second quarter 2024 results and missed on the Zacks Consensus for the second quarter in a row. Earnings were $2.06 versus the consensus of $2.93.
Civitas is an “oily” producer, meaning it focuses on oil and not natural gas. Crude oil accounted for 87% of total revenue in the quarter.
Sales of crude oil, natural gas, and natural gas liquids (“NGL”) were $1.3 billion which was consistent with that of the first quarter.
Permian Basin sales volumes rose about 12% from the first quarter, driven by strong production from recent Delaware and Midland Basin wells.
Adjusted free cash flow in the quarter was $235.4 million.
Civitas is Shareholder Focused with a Buyback and Dividend Plan
The company is shareholder focused. It returned capital to shareholders in the quarter of $274 million including dividends of $1.50 per share and share repurchases of $125 million. It pays a strong base dividend and a variable dividend of at least 50% of its free cash flow.
Beginning in the third quarter, the variable return of capital will be allocated through a combination of common stock repurchases and dividends, with the quarterly allocation between the two determined by management and the Board.
The quarterly base dividend remains at $0.50 per share. That’s currently a yield of 3.9%.
Earnings Estimates Get Cut
With WTI crude back trading under $70, it’s not surprising that the analysts have been cutting their earnings estimates on Civitas.
For 2024, 1 estimate was cut in the last 30 days but 4 were cut prior to that, in the last 60 days. The full year earnings estimate has fallen to $10.05 from $12.13.
However, it is still earnings growth of 11.4% over last year, when Civitas made $9.02.
Estimates have also been cut for 2025 in the last 60 days. 6 earnings estimates were cut during that time, pushing the Zacks Consensus Estimate down to $10.69 from $13.06 just 60 days prior. That’s still earnings growth of 6.4%.
However, it doesn’t look good on the chart. If WTI crude prices fall further, look for earnings to continue to fall.
Image Source: Zacks Investment Research
Is Civitas a Value Trap?
Shares of Civitas have fallen sharply over the last year but earnings are still expected to grow this year and next (for now).
Image Source: Zacks Investment Research
Civitas now has a forward P/E of just 5.1. But a price-to-earnings ratio that is extremely low can indicate that a stock is a value trap.
With the Saudis signaling they are going to increase production starting in Dec 2024, there is a lot of uncertainty about crude prices.
Investors might want to stay on the sidelines and wait for clarification on crude prices before diving into an oil and natural gas producer like Civitas.