On Monday, Citi revised its price target for California Resources Corporation (NYSE:CRC), a company specializing in natural resources extraction and carbon management, adjusting it to $62.00 from the previous $65.00 while retaining a Buy rating on the stock.
Currently trading at $54.92, CRC maintains a strong consensus among analysts, with targets ranging from $57 to $80. The adjustment follows Citi's updated model for California Resources' carbon capture business.
According to InvestingPro data, the company demonstrates solid fundamentals with a healthy gross margin of 53.7% and operates with moderate debt levels.
The updated model takes into account new growth opportunities and provides a more accurate timeline for the company's carbon sequestration ramp-up. Citi's analyst noted that while the firm still projects California Resources to achieve 10 million metric tons per annum (mmtpa) of sequestration by 2032, the path to this goal will be more gradual, with 2 mmtpa expected to be reached by 2028.
The valuation of the net present value (NPV) of California Resources' carbon capture operations, which includes their joint venture structure, is now approximately $1.5 billion. This figure is slightly lower than previous estimates, attributed to the time value factor.
The price target reduction to $62 reflects the decreased valuation of the carbon capture business. However, the analysis still breaks down the company's value into several components: approximately $27 per share for the upstream business, based on around 3.5 times debt-adjusted cash flow (DACF) multiple with Brent crude oil at $68 per barrel, $17 per share for carbon management, $12 per share for power generation, and roughly $6 per share for real estate assets.
InvestingPro analysis suggests the stock is currently fairly valued, with a PEG ratio of 0.86 indicating attractive pricing relative to growth. Subscribers to InvestingPro can access the comprehensive Pro Research Report, which provides detailed analysis of CRC's valuation metrics and growth prospects among 1,400+ top US stocks.
Citi's continuing Buy rating indicates the firm's positive outlook on California Resources despite the slight decrease in the carbon capture business's projected value. The company's diversified portfolio, including upstream operations and carbon management, appears to support Citi's optimistic perspective on the stock's future performance.
In other recent news, California Resources Corporation has seen several significant developments. TD Cowen raised its price target for the company to $74.00, maintaining a Buy rating and highlighting potential growth in 2025.
This growth is expected to be driven by the '24 Aera deal acquisition, contributing to operational efficiencies, and carbon capture, utilization, and storage (CCUS) initiatives, potentially increasing net asset value by over 40% within the next year.
The company also announced the appointment of Clio C. Crespy as the new Executive Vice President and Chief Financial Officer, effective from January 1, 2025. In the third quarter, California Resources reported a strong financial performance with $402 million in adjusted EBITDAX and $141 million in free cash flow, returning $76 million to shareholders.
California Resources recently merged with Aera Energy, becoming the largest oil producer in the state, a move that received a positive response from Mizuho (NYSE:MFG) Securities. The firm raised its price target from $62.00 to $66.00 while maintaining an Outperform rating. The company is also advancing its carbon management initiatives, including awaiting the Environmental Protection Agency's Class VI permit for its inaugural carbon sequestration project.
Lastly, the company has hedged 72% of its 2025 oil production at $67 per barrel and plans to continue share repurchases, with $600 million remaining under authorization. These developments underscore California Resources' commitment to strategic growth and operational efficiency.
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