EOG Resources Inc (EOG, Financial) experienced a daily loss of -1.41%, yet an impressive 3-month gain of 15.95%. With an Earnings Per Share (EPS) (EPS) of 14.84, the question arises: Is the stock fairly valued? This article aims to answer this question by providing a comprehensive analysis of EOG Resources' valuation. Let's delve deeper into the company's financial health and growth prospects.
EOG Resources is a leading oil and gas producer with significant acreage in U.S. shale plays, including the Permian Basin, the Eagle Ford, and the Bakken. As of the end of 2022, it reported net proved reserves of 4.2 billion barrels of oil equivalent. The company's net production averaged 908 thousand barrels of oil equivalent per day in 2022, with a ratio of 73% oil and natural gas liquids and 27% natural gas. At its current price of $127.18 per share and a market cap of $74.10 billion, EOG Resources appears to be fairly valued according to the GF Value, an estimate of fair value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
EOG Resources (EOG, Financial) is fairly valued according to the GuruFocus Value calculation. This implies that the long-term return of its stock is likely to be close to the rate of its business growth.
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. EOG Resources has a cash-to-debt ratio of 1.15, which ranks better than 60.91% of 1031 companies in the Oil & Gas industry. Based on this, GuruFocus ranks EOG Resources's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. EOG Resources has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $25.10 billion and Earnings Per Share (EPS) of $14.84. Its operating margin is 42.42%, which ranks better than 84.81% of 981 companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of EOG Resources at 8 out of 10, which indicates strong profitability.
Growth is one of the most important factors in the valuation of a company. EOG Resources's 3-year average revenue growth rate is better than 70.47% of 860 companies in the Oil & Gas industry. EOG Resources's 3-year average EBITDA growth rate is 21.7%, which ranks better than 59.78% of 828 companies in the Oil & Gas industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, EOG Resources's return on invested capital is 25.6, and its cost of capital is 10.32.
In conclusion, the stock of EOG Resources gives every indication of being fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 59.78% of 828 companies in the Oil & Gas industry. To learn more about EOG Resources stock, you can check out its 30-Year Financials here.
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