On Monday, JPMorgan (NYSE:JPM) took action on shares of Coterra Energy (NYSE:CTRA), adjusting its price target on the company's shares. The financial institution has lowered the target to $24 from the previous $28 while maintaining an Overweight rating on the stock.
The modification follows an update to their financial model, which now anticipates that Coterra Energy will produce 109 thousand barrels of oil per day (MBo/d) and a total of 650 thousand barrels of oil equivalent per day (MBoe/d) in the fourth quarter, with capital expenditures (capex) under $433 million. This activity is expected to generate about $260 million in free cash flow (FCF) for the quarter.
For the full fiscal year 2024, JPMorgan estimates Coterra's FCF to be around $1.11 billion, which aligns closely with the company's own guidance of approximately $1.1 billion. These figures are based on the assumption of $75.84 per barrel of oil and $2.18 per thousand cubic feet (Mcf) of natural gas. The analyst's projection is slightly different from Coterra's guidance, which is based on $75.58 per barrel and $2.22 per Mcf.
Looking ahead to 2025, the analyst expects Coterra to increase its oil production to 113 MBo/d and total production to 688 MBoe/d. The company's capex for that year is estimated at $1.88 billion, which is anticipated to drive $1.28 billion in FCF, assuming oil and natural gas prices of $66 per barrel and $3.12 per Mcf, respectively. This would result in an approximate yield of 7.8%.
The decision to adjust the price target to $24 reflects a reevaluation of the market's pricing trends and a downward revision in JPMorgan's long-term price deck, as noted by the analyst. Despite these changes, JPMorgan has reiterated its Overweight rating on Coterra Energy, indicating a continued positive outlook on the stock.
In other recent news, Coterra Energy Inc. demonstrated a strong third-quarter performance, outperforming production expectations and spending less on capital expenditure than anticipated. The company reported a net income of $252 million for the quarter and raised its 2024 oil production guidance to 107-108 MBoepd.
Coterra also emphasized its dedication to shareholders, returning 96% of free cash flow via dividends and share repurchases. Furthermore, the firm has entered into new LNG sales agreements to diversify its revenue, with deliveries slated to start in 2027 and 2028.
The company's total production averaged 669 MBoepd, surpassing their guidance, and capital expenditures were reported at $418 million, below the expected amount. However, the shift from simul-frac to zipper-frac in the Permian is expected to reduce Q4 volumes, and drilling has been temporarily halted in the Marcellus due to low Northeast gas prices.
Despite these operational challenges, Coterra reported a 26% increase in drilling efficiency and a 23% increase in frac pumping hours.
Coterra Energy's recent developments indicate an ongoing commitment to high-quality projects and disciplined capital allocation. While acknowledging the ongoing challenges in the Waha gas pricing, Coterra's proactive management and disciplined capital allocation strategy aim to maintain its competitive edge in the energy market.
InvestingPro Insights
To complement JPMorgan's analysis of Coterra Energy (NYSE:CTRA), recent data from InvestingPro offers additional perspective on the company's financial health and market position. Despite the lowered price target, Coterra's P/E ratio of 13.75 suggests the stock may still be reasonably valued relative to its earnings. This is further supported by the company's price-to-book ratio of 1.28, indicating that the stock is trading close to its book value.
InvestingPro Tips highlight Coterra's financial stability and shareholder-friendly policies. The company has maintained dividend payments for 35 consecutive years, demonstrating a commitment to returning value to shareholders even in challenging market conditions.
Moreover, Coterra operates with a moderate level of debt and its liquid assets exceed short-term obligations, which aligns with JPMorgan's projection of continued free cash flow generation.
While JPMorgan forecasts increased production and free cash flow for 2025, it's worth noting that Coterra's revenue growth has been negative, with a -14.0% decline in the last twelve months. However, the company remains profitable, with analysts predicting continued profitability this year.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Coterra Energy, providing a deeper understanding of the company's market position and potential.
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