On Friday, Citi reinstated its coverage of California Resources Corporation (NYSE:CRC) stock, issuing a Buy rating with a price target of $63.00. The firm's analysis suggests a positive outlook for the company, citing several factors that position it well for the future.
The reinstatement comes with a robust valuation of the company, based on approximately three times the estimated 2024 Delevered Adjusted Cash Flow (DACF), adding $20 per share for Carbon Management Business (CMB) value, and another $8 per share for real estate value. Citi's perspective is that California Resources is well-positioned, especially with the potential stabilization of oil production next year.
California Resources' strategic initiatives in carbon capture in California and the potential benefits from the Elk Hills power plant are highlighted as key drivers for the company's positive trajectory. The expectation of securing a first class VI well permit, which is anticipated in the coming months, is projected to reassure the market about the commercialization prospects for 2025.
Citi has also updated its model for California Resources to reflect the recent Aera acquisition and the second half of 2024 guidance for the combined entity. Additionally, the updated model includes adjustments based on Citi’s most recent commodity price deck.
The firm forecasts a second-quarter EBITDAX of $146 million for California Resources, which is slightly above the consensus excluding outliers. This financial indicator is critical as it measures a company's earnings before interest, taxes, depreciation, amortization, and exploration expenses, providing a clear picture of its operational performance.
The analyst's commentary and the updated financial model underscore the firm's confidence in California Resources' strategic positioning and its potential for growth in the near future.
In other recent news, California Resources Corporation (CRC) shareholders have approved the acquisition of Aera Energy LLC and its operating affiliate Aera Energy Services Company. This strategic move is expected to enhance CRC's portfolio and presence in the energy sector.
RBC Capital maintained an Outperform rating on the company, highlighting the potential of its carbon management business and the exploration into powering California data centers with carbon-free solutions.
CRC plans to offer $500 million in senior unsecured notes due 2029, the proceeds of which are earmarked for the repayment of existing debts of Aera Energy, LLC and its operating affiliate Aera Energy Services Company.
On the financial front, CRC reported solid Q1 2024 results, with $149 million in adjusted EBITDAX and $33 million in free cash flow. These are recent developments that underline CRC's strategic moves and financial health.
InvestingPro Insights
Complementing Citi's optimistic outlook on California Resources Corporation (NYSE:CRC), InvestingPro data and tips offer additional insights into the company's financial health and future prospects. With a market capitalization of $4.68 billion and a P/E ratio of 14.15, the company presents an interesting valuation. Notably, the P/E ratio has adjusted to 28.18 over the last twelve months as of Q1 2024, suggesting a shift in earnings expectations. Despite a challenging revenue growth rate of -33.34% during the same period, California Resources has maintained a solid gross profit margin of 53.91%, indicating efficient cost management.
InvestingPro Tips highlight that California Resources has increased its dividend for three consecutive years, currently offering a yield of 2.37%, with a recent growth of 9.73%. This consistent return to shareholders is coupled with the company’s ability to maintain liquid assets that exceed its short-term obligations, reflecting financial stability. Moreover, with moderate levels of debt and a return on assets of 6.4%, the company operates on a solid financial footing. Analysts predict profitability for the year, backed by a profitable track record over the last twelve months. Additionally, California Resources has provided a strong return over the last five years, reinforcing the positive sentiment around the company's performance.
For readers looking to delve deeper into California Resources' investment potential, InvestingPro offers a wealth of additional tips, with the complete list available at https://www.investing.com/pro/CRC. To access these insights and more, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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