On Monday, Truist Securities updated its outlook on Civitas Solutions (NYSE:CIVI), raising the price target to $110 from the previous $107 while maintaining a Buy rating on the stock. Civitas Solutions reported fourth-quarter earnings for fiscal year 2023 that fell short of both Truist Securities and consensus estimates, mainly due to lower-than-anticipated oil production. The shortfall was attributed to facility upgrades that impacted output.
Despite the earnings miss, Civitas Solutions has laid out a 2024 guidance that includes significantly reduced capital expenditure without altering its production growth expectations. Additionally, the company has announced a substantial share buyback program, which aims to reduce the impact of private equity overhang. Alongside this, Civitas continues to deliver strong returns to shareholders, boasting one of the highest dividend yields among its peers.
The company has also made progress in its asset divestment strategy, announcing a non-core sale in the DJ basin worth $85 million. This move is part of a broader plan to achieve $300 million in divestitures by mid-2024, which is expected to accelerate the repayment of debt. Adjustments have been made to Truist Securities' financial model for Civitas to reflect the actual fourth-quarter performance and more accurate volume and cost projections.
The revised $110 price target is based on a combination of two valuation methods. The first is a 2025 enterprise value to EBITDAX (earnings before interest, taxes, depreciation, amortization, and exploration expenses) multiple of 3.5 times, applied to the firm's estimated 2025 EBITDAX of $4,509 million, which is above the consensus estimate of $3,996 million. The second method is based on a free cash flow to enterprise value yield assumption of 14%.
InvestingPro Insights
In light of Truist Securities' recent update on Civitas Solutions, the InvestingPro data and tips offer a deeper dive into the company's financial health and stock performance. Civitas Solutions has demonstrated resilience with a notable dividend yield of 9.74%, reflecting its commitment to returning value to shareholders. This is particularly significant as the company has raised its dividend for 3 consecutive years, an InvestingPro Tip that suggests a reliable income stream for investors.
The stock's recent performance has also been strong, with a 1-month price total return of 14.3%, indicating a significant return over the last month. This aligns with another InvestingPro Tip highlighting the company's strong return over the last week. Such momentum can be a positive signal for investors looking for short-term gains, although the RSI suggests the stock is in overbought territory, which warrants caution.
For those considering the long-term prospects, Civitas Solutions has a relatively low price to earnings (P/E) ratio of 7.61, and even when adjusted for the last twelve months as of Q4 2023, it stands at 8.36. This could indicate that the stock is potentially undervalued compared to earnings, which is often a factor that value investors consider.
For more detailed analysis and additional InvestingPro Tips, including analysts' earnings revisions and stock volatility insights, visit InvestingPro at https://www.investing.com/pro/CIVI. There are 9 more tips available that could provide further guidance on Civitas Solutions' stock. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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