On Thursday, JPMorgan (NYSE:JPM) updated its financial outlook on Matador Resources Company (NYSE:MTDR), increasing the price target to $78 from $77, while keeping an Overweight rating on the stock. The adjustment follows Matador's first-quarter cash flow surpassing expectations and the company's announcement of a rise in its full-year 2024 production guidance, despite maintaining its capital expenditure forecast.
Matador's shares experienced a slight underperformance compared to the XOP index on Wednesday, which the analyst found surprising. This was attributed to investor concerns over higher second-quarter capital expenditures and the effect of acquisition volumes on the first-quarter performance, although these volumes were accounted for in the company's guidance. Matador has now raised its full-year 2024 production guidance to the upper end of the previously stated 91-95 thousand barrels of oil per day (MBo/d).
The firm has updated its own estimate for Matador's 2024 production to 94.9 MBo/d, which is higher than the Street's estimate of 93.0 MBo/d. Matador is expected to achieve sequential volume growth from the second to the fourth quarter, following the completion of its midstream interconnections, with no issues anticipated in natural gas volume flow despite the tight market in the Permian region.
However, Matador anticipates a quarter-over-quarter decline in natural gas volumes in the second quarter, in contrast to a projected ~10% sequential increase in oil production. This is due to a combination of factors, including a high number of turn-in-line (TIL) operations in oil-rich areas, marginal shut-ins of high gas-to-oil ratio wells in the Delaware basin due to unfavorable pricing, and shut-in Haynesville volumes.
Despite not revising its fourth-quarter 2024 production guidance, which remains at 97-98 MBo/d, the higher full-year guidance suggests that the exit rate may need to be adjusted upward. JPMorgan now models 101.1 MBo/d of fourth-quarter oil volumes, compared to the Street's estimate of 98.1 MBo/d.
Based on recent strip pricing, Matador is projected to generate $729 million in free cash flow (FCF) in 2024, yielding 9.1%. In 2025, with a production estimate of 102.5 MBo/d of oil volumes and capital expenditures of $1.45 billion, the company is expected to produce $698 million in FCF, yielding 8.6%.
InvestingPro Insights
Matador Resources Company (NYSE:MTDR) has been a subject of positive outlooks, as reflected in JPMorgan's recent price target update. Supporting this optimism, InvestingPro Tips highlight that Matador has raised its dividend for three consecutive years, signaling confidence in its financial health. Additionally, seven analysts have revised their earnings upwards for the upcoming period, further underpinning the company's potential for growth.
From a financial metrics perspective, Matador's current market capitalization stands at $8.15 billion, with a Price/Earnings (P/E) ratio of 8.93, which is relatively low compared to industry peers, suggesting that the stock may be undervalued. The company's Price/Book ratio as of the last twelve months ending Q1 2024 is 1.84, indicating a reasonable valuation given its book value. In terms of profitability, Matador has demonstrated strong performance with a gross profit margin of 79.8% over the last twelve months, highlighting efficient operations and cost management.
For investors looking for additional insights and tips, there are more InvestingPro Tips available for Matador, which can be accessed by visiting: https://www.investing.com/pro/MTDR. Plus, by using the coupon code PRONEWS24, readers can enjoy an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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