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Coterra Energy Stock at 52-Week Low: Is It a Buy Opportunity?
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Shares of natural gas-focused producer Coterra Energy (CTRA - Free Report) slipped to a 52-week low of $22.79 per share on Sept. 6, before closing a tad higher at $23.49. Year to date, Coterra Energy has lost more than 10% of its value compared with the sector's decrease of 0.7%. Meanwhile, the S&P 500 Index has risen 13.3% over the same timeframe. The company has also fared worse than its peers like Range Resources (RRC - Free Report) and Antero Resources (AR - Free Report) .
YTD Price Comparison
Image Source: Zacks Investment Research
What’s Dragging Down Coterra Energy Stock?
Investors seem to be worried about the company’s exposure to the oversupplied natural gas market and high operational costs.
Downward Pressure From Gas Price Weakness: The main risk to the company and the stock is the fluctuating price of natural gas, to which it is highly sensitive. With the commodity currently struggling to stay above $2 on a sustained basis, Coterra Energy's operating margins are likely to come under pressure.
High Operating Costs Weigh on Margins: Coterra’s operating costs of $2.58 per MMcfe (AR - Free Report) are higher than many peers. This places Coterra at a competitive disadvantage, especially in an environment of fluctuating commodity prices. Elevated costs could limit profit margins, reduce the company's ability to generate free cash flow, and impair its capacity to deliver shareholder returns, especially if commodity prices weaken.
Reduced Capital Allocation and Curtailments in the Marcellus: Coterra’s strategic response to the weak gas market includes reducing capital expenditures in the Marcellus by more than 50% year over year and implementing production curtailments. While management asserts that these are tactical responses to temporary conditions, the reduced activity in this key area could impact Coterra's ability to capitalize on any potential price recovery.
Southbound Estimate Revisions: Earnings estimates for CTRA for 2024 have moved down 2.5% to $1.96 over the past 30 days, while the same for 2025 has dropped 1.7% to $2.87. The negative estimate revision depicts bearish sentiments for the stock.
CTRA’s Prospects Bright
Despite near-term challenges, Coterra Energy is well-positioned for long-term growth on the back of several catalysts.
Diversified Asset Portfolio: Coterra's diverse asset base spans multiple prolific regions, including the Permian Basin, Anadarko Basin and Marcellus Shale, providing a balanced mix of oil and natural gas production. In 2023, oil accounted for 48% of revenues, mitigating the impact of fluctuating gas prices. This diversification not only reduces reliance on any single commodity or region but also offers flexibility in shifting capital to the most lucrative opportunities.
Low Threshold to Profitability: The wells drilled by Coterra Energy have extremely low breakeven costs and need oil prices of just $50 a barrel and natural gas at $2.50 per million British thermal units (MMBtu) to be profitable. This assures good profitability for the company at maximum commodity prices.
Operational Proficiency: In the second quarter of 2024, the company exceeded production guidance across all three streams — oil, natural gas, and natural gas liquids — while staying at the low end of capital expenditure guidance. This operational excellence underscores Coterra’s ability to adapt to market fluctuations while maintaining profitability.
Robust Shareholder Returns: Coterra continues to prioritize shareholder returns, with a 21 cents per share base dividend and aggressive share repurchases totaling $140 million during Q2 2024. The company returned 120% of its free cash flow to its shareholders, well above its 50% target, illustrating its commitment to enhancing shareholder value.
Coterra Energy Offers Attractive Valuation
From a valuation perspective, Coterra Energy is trading at a discount compared to the industry. Its training 12-month EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio, a commonly used multiple for valuing energy stocks, currently reads 5.21, also below its median over the last five years. The company has a Value Score of B.
Out of the 25 brokers covering the Coterra Energy stock, 19 have Strong Buy recommendations, one Buy and five Hold ratings. As the stock has dipped at a double-digit percentage this year, the Zacks average price target of $33.04 is about 44% above the current levels.
Conclusion: Don’t Rush to Buy CTRA Stock Now
Coterra’s long-term demand prospects remain supported by its diversified asset portfolio and attractive valuation. However, EPS estimates for CTRA have been revised downward over the past month, reflecting concerns about the company’s near-term profitability. In other words, Coterra appears to be treading in the middle of the road, and investors could be better off if they trade with caution. While this might not be the ideal time to invest in the upstream operator despite the recent dip in share prices, those who already own this Zacks Rank #3 (Hold) stock may stay invested.
Image: Bigstock
Coterra Energy Stock at 52-Week Low: Is It a Buy Opportunity?
Shares of natural gas-focused producer Coterra Energy (CTRA - Free Report) slipped to a 52-week low of $22.79 per share on Sept. 6, before closing a tad higher at $23.49. Year to date, Coterra Energy has lost more than 10% of its value compared with the sector's decrease of 0.7%. Meanwhile, the S&P 500 Index has risen 13.3% over the same timeframe. The company has also fared worse than its peers like Range Resources (RRC - Free Report) and Antero Resources (AR - Free Report) .
YTD Price Comparison
Image Source: Zacks Investment Research
What’s Dragging Down Coterra Energy Stock?
Investors seem to be worried about the company’s exposure to the oversupplied natural gas market and high operational costs.
Downward Pressure From Gas Price Weakness: The main risk to the company and the stock is the fluctuating price of natural gas, to which it is highly sensitive. With the commodity currently struggling to stay above $2 on a sustained basis, Coterra Energy's operating margins are likely to come under pressure.
High Operating Costs Weigh on Margins: Coterra’s operating costs of $2.58 per MMcfe (AR - Free Report) are higher than many peers. This places Coterra at a competitive disadvantage, especially in an environment of fluctuating commodity prices. Elevated costs could limit profit margins, reduce the company's ability to generate free cash flow, and impair its capacity to deliver shareholder returns, especially if commodity prices weaken.
Reduced Capital Allocation and Curtailments in the Marcellus: Coterra’s strategic response to the weak gas market includes reducing capital expenditures in the Marcellus by more than 50% year over year and implementing production curtailments. While management asserts that these are tactical responses to temporary conditions, the reduced activity in this key area could impact Coterra's ability to capitalize on any potential price recovery.
Southbound Estimate Revisions: Earnings estimates for CTRA for 2024 have moved down 2.5% to $1.96 over the past 30 days, while the same for 2025 has dropped 1.7% to $2.87. The negative estimate revision depicts bearish sentiments for the stock.
CTRA’s Prospects Bright
Despite near-term challenges, Coterra Energy is well-positioned for long-term growth on the back of several catalysts.
Diversified Asset Portfolio: Coterra's diverse asset base spans multiple prolific regions, including the Permian Basin, Anadarko Basin and Marcellus Shale, providing a balanced mix of oil and natural gas production. In 2023, oil accounted for 48% of revenues, mitigating the impact of fluctuating gas prices. This diversification not only reduces reliance on any single commodity or region but also offers flexibility in shifting capital to the most lucrative opportunities.
Low Threshold to Profitability: The wells drilled by Coterra Energy have extremely low breakeven costs and need oil prices of just $50 a barrel and natural gas at $2.50 per million British thermal units (MMBtu) to be profitable. This assures good profitability for the company at maximum commodity prices.
Operational Proficiency: In the second quarter of 2024, the company exceeded production guidance across all three streams — oil, natural gas, and natural gas liquids — while staying at the low end of capital expenditure guidance. This operational excellence underscores Coterra’s ability to adapt to market fluctuations while maintaining profitability.
Robust Shareholder Returns: Coterra continues to prioritize shareholder returns, with a 21 cents per share base dividend and aggressive share repurchases totaling $140 million during Q2 2024. The company returned 120% of its free cash flow to its shareholders, well above its 50% target, illustrating its commitment to enhancing shareholder value.
Coterra Energy Offers Attractive Valuation
From a valuation perspective, Coterra Energy is trading at a discount compared to the industry. Its training 12-month EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio, a commonly used multiple for valuing energy stocks, currently reads 5.21, also below its median over the last five years. The company has a Value Score of B.
Out of the 25 brokers covering the Coterra Energy stock, 19 have Strong Buy recommendations, one Buy and five Hold ratings. As the stock has dipped at a double-digit percentage this year, the Zacks average price target of $33.04 is about 44% above the current levels.
Conclusion: Don’t Rush to Buy CTRA Stock Now
Coterra’s long-term demand prospects remain supported by its diversified asset portfolio and attractive valuation. However, EPS estimates for CTRA have been revised downward over the past month, reflecting concerns about the company’s near-term profitability. In other words, Coterra appears to be treading in the middle of the road, and investors could be better off if they trade with caution. While this might not be the ideal time to invest in the upstream operator despite the recent dip in share prices, those who already own this Zacks Rank #3 (Hold) stock may stay invested.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.