In a recent update, Morgan Stanley revised its price target for Civitas Resources (CIVI, Financial), increasing it from $40 to $42. The financial firm maintains its Overweight rating on the stock, indicating continued confidence in the company's performance and potential for growth.
CIVI Key Business Developments
Release Date: May 08, 2025
- Capital Expenditure Reduction: $150 million reduction compared to 2024.
- Incremental Free Cash Flow: $100 million annual increase targeted through cost optimization and efficiency plan.
- Oil Gathering Agreement: Expected to increase free cash flow by approximately $15 million annually.
- Hedge Position: Nearly 50% hedged on crude oil for the remainder of the year, valued at nearly $200 million.
- Net Debt Target: Year-end 2025 target of $4.5 billion.
- Share Buyback: Completed 10b5 repurchase program, buying back nearly 2% of shares outstanding.
- First Quarter Production: Slightly lower than expectations due to lower capital.
- Second Quarter Oil Growth Expectation: 5% growth, led by the Permian Basin.
- Operational Efficiency: 10% faster drilling in the Delaware and 5% increase in throughput in the Midland Basin.
- Cash Operating Costs: Higher than planned due to operational challenges in the Permian.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Civitas Resources Inc (CIVI, Financial) has implemented a comprehensive cost optimization and efficiency plan aimed at generating an incremental $100 million of annual free cash flow.
- The company has a robust financial liquidity position, a strong hedge book, and significant capital flexibility to adjust plans as necessary.
- Civitas Resources Inc (CIVI) has identified over $100 million in incremental free cash flow on a run rate basis, with approximately 40% benefiting the second half of 2025.
- The company has significantly expanded its hedge position, now nearly 50% hedged on crude oil for the remainder of the year, with hedge positions worth nearly $200 million.
- Civitas Resources Inc (CIVI) completed its existing 10b5 repurchase program, buying back nearly 2% of its shares outstanding, and plans to shift more free cash flow to additional share buybacks once the net debt target is achieved.
Negative Points
- Production in the first quarter was slightly lower than expectations due to lower capital and higher cash operating costs.
- Operational challenges with contracted water takeaway in the Permian elevated first-quarter costs, although the company plans to pursue cost recovery.
- The company experienced delays in production due to weather and capital shifts, impacting first-quarter results and pushing some growth to later quarters.
- Civitas Resources Inc (CIVI) faces a challenging macro environment with volatile oil prices, which could impact its ability to meet its debt target if conditions worsen.
- The upstream market is currently challenging for asset sales, and the company is not willing to sell assets at low prices, which could affect its $300 million asset sale target.
