On Tuesday, JPMorgan (NYSE:JPM) analyst Arun Jayaram increased the price target for Coterra Energy (NYSE:CTRA) shares to $35.00 from the previous $31.00, while maintaining an Overweight rating on the stock. The adjustment reflects an optimistic view of the company's operational performance and strategic acquisitions. Currently trading near its 52-week high of $28.90, InvestingPro data indicates the stock is slightly undervalued, with seven analysts recently revising their earnings estimates upward for the upcoming period.
Coterra Energy is anticipated to report a robust operational quarter for the fourth quarter of 2024, as the company has consistently exceeded its oil production guidance for the past eight quarters. The analyst's oil production estimate of 109.9 thousand barrels of oil per day (MBo/d) aligns with the high end of Coterra's guidance and is in line with the Street's estimate of 109.8 MBo/d.
The company's total production estimate of 649.2 thousand barrels of oil equivalent per day (MBoe/d) is slightly below the Street's estimate of 652.0 MBoe/d, mainly due to a 1% lower natural gas production estimate. However, with the recent improvement in gas prices, Coterra likely brought 11 deferred Turn-In-Line (TIL) wells from its backlog into production during late fourth quarter, which is expected to boost volumes in the first quarter of 2025.
Despite the natural gas production estimate being 4% below the Street's estimate, JPMorgan anticipates a 2% sequential increase in natural gas production in the first quarter of 2025. Coterra has not resumed activity in the Marcellus shale yet, but the firm suggests the possibility of the company adding 1-2 rigs in the near term due to increased strip pricing.
Coterra reduced its Marcellus program budget from $834 million in 2023 to $300 million in 2024. For the upcoming year, Coterra's operating team is exploring new well designs to lower drilling and completion costs, which could justify a higher capital allocation.
JPMorgan's fourth-quarter cash flow per share (CFPS) and earnings before interest, taxes, depreciation, amortization, and exploration expenses (EBITDAX) estimates are 3% and 2% below the Street's estimates, respectively, with a CFPS of $1.04 and EBITDAX of $872 million. The company's fourth-quarter capital expenditure is estimated at $447 million, slightly below the Street's $452 million estimate, leading to a free cash flow (FCF) generation of $315 million.
With a market capitalization of $21.07 billion and trailing twelve-month EBITDA of $3.45 billion, Coterra maintains strong fundamentals. The company has impressively maintained dividend payments for 35 consecutive years, with approximately 56% of FCF expected to be returned to shareholders through a $0.21 quarterly dividend and $20 million in buybacks. InvestingPro subscribers can access detailed financial health metrics and 12 additional ProTips about Coterra's performance.
Looking ahead, Coterra is expected to focus more on debt reduction, aiming to pay down around $1 billion of debt over the next 12 to 24 months following its Delaware Basin acquisitions. The company operates with a moderate debt level, maintaining a healthy current ratio of 1.61 and demonstrating relatively low price volatility with a beta of 0.25. For comprehensive analysis and detailed valuation metrics, investors can access Coterra's full Pro Research Report, available exclusively on InvestingPro, along with reports for 1,400+ other US equities. On November 13, Coterra announced the acquisition of Franklin Mountain and Avant Natural Resources for $3.95 billion. The deals, initially expected to close by January 1, 2025, are now anticipated to finalize by the end of January 2025.
For the fiscal year 2025, JPMorgan models Coterra's oil production at 160 MBo/d, driven by a capital expenditure of $2.26 billion, assuming the acquisitions close as scheduled. These figures are in line with the Street's estimates. The forthcoming update to Coterra's three-year plan, which will include the newly acquired assets, is also eagerly awaited by investors.
After updating its model for recent strip pricing, JPMorgan reiterates an Overweight rating and raises its December 2025 price target to $35 per share, which reflects the stock trading at 100% of the firm's blended net asset value (NAV).
In other recent news, Coterra Energy has made considerable strides with a series of acquisitions and financial maneuvers. The energy company expanded its assets with a $43 million purchase, bolstering its portfolio in the energy sector. This move was part of an amended agreement to acquire additional assets, including approximately 1,650 net royalty acres owned by Sandia Minerals. In response to these acquisitions, Truist Securities increased its price target for Coterra Energy, citing the strategic value.
In further financial developments, Coterra Energy successfully issued $1.5 billion in senior notes and secured $1 billion in term loans. The proceeds from these financial activities are intended to partially cover the costs of the company's recent acquisitions. The company's Q3 performance was robust, reporting a net income of $252 million and total production averaging 669 thousand barrels of oil equivalent per day, surpassing their guidance.
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