On Thursday, Jefferies initiated coverage on California Resources Corporation (NYSE:CRC) stock, assigning the stock a Buy rating and setting a price target of $64.00. The research firm highlighted the company's potential in the oil sector through its exploration and production (E&P) operations and its prospects in the energy transition space due to its carbon capture storage (CCS) and power projects.
California Resources Corporation is seen by Jefferies as an investment opportunity that stands out due to its ability to leverage oil through its E&P business. The company also presents an appealing option for the energy transition through its involvement in CCS and power initiatives. Despite trading at a lower valuation compared to its peers in the E&P sector, Jefferies believes that California Resources can manage production levels effectively even without new drilling permits.
The analyst noted that California Resources faces challenges, such as oil and gas permitting issues in California and risks associated with transitioning its business model. However, the company has strategies in place to mitigate the impact of production declines without relying on new drilling permits. Additionally, the potential value-add from its CCS and power projects could provide an upside to the company's valuation.
Jefferies expressed confidence that with strong execution, California Resources is well-positioned to realize its Sum of the Parts (SOTP) value. The firm's coverage and optimistic outlook reflect a positive view of the company's strategic direction and its ability to navigate the complexities of the energy market.
In other recent news, California Resources Corporation (CRC) has been making headlines with a series of significant developments. The company's Carbon Capture and Storage (CCS) business has been identified as a key growth driver by Stephens, which initiated coverage on CRC with an Overweight rating. The analysts highlighted CRC's unique position to leverage its substantial land holdings and existing energy infrastructure to support California's carbon neutrality goals.
Furthermore, the company's Carbon TerraVault I project, California's first carbon capture and storage endeavor, has received unanimous approval from the Kern County Board of Supervisors, marking a major milestone in CRC's carbon management strategy. UBS and Mizuho Securities have also expressed confidence in CRC's strategic initiatives, initiating coverage with Buy and Outperform ratings, respectively.
Financially, CRC reported robust second-quarter results, with $139 million in adjusted EBITDAX and $63 million in free cash flow, returning $57 million to shareholders. The company is projecting a substantial increase in cash flow in the second half of 2024, with an expected adjusted EBITDAX of around $1 billion.
In addition, CRC has determined the consideration for its cash tender offer to purchase a portion of its outstanding 7.125% senior notes due 2026. This move is part of CRC's strategy to manage its hedge book to support investments, debt servicing, and shareholder returns. The company is also considering refinancing or prepaying debt as part of its commitment to reducing net leverage and enhancing shareholder value. These recent developments highlight CRC's strategic direction and commitment to driving long-term growth and value for its stakeholders.
InvestingPro Insights
To complement Jefferies' bullish outlook on California Resources Corporation (NYSE:CRC), InvestingPro data provides additional context for investors. The company's market cap stands at $4.69 billion, with a P/E ratio of 21.98, indicating investor confidence in its earnings potential. CRC's revenue for the last twelve months as of Q2 2024 was $2.259 billion, though it experienced a revenue decline of 29.36% over the same period.
InvestingPro Tips highlight CRC's financial stability and growth potential. The company "operates with a moderate level of debt" and "liquid assets exceed short term obligations," which aligns with Jefferies' view on CRC's ability to manage production levels effectively. Additionally, CRC "has raised its dividend for 3 consecutive years," with a current dividend yield of 2.95%, showcasing its commitment to shareholder returns.
The company's profitability is underscored by another InvestingPro Tip stating that CRC has been "profitable over the last twelve months," with analysts predicting continued profitability this year. This supports Jefferies' positive stance on CRC's E&P operations and potential in the energy transition space.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide deeper insights into CRC's investment potential.
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