Jefferies starts Sable Offshore stock at Buy, highlighting strong FCF potential Via Investing.com
On Tuesday, Jefferies, a global investment banking firm, started coverage on Sable Offshore Corp stock. (NYSE: SOC ) with a buy rating and a price target of $19.00.
The company highlighted the company's strong free cash flow (FCF) potential due to its unique offshore asset, known as SYU, located in state waters off the coast of California.
The analyst pointed to the longevity and stable production of SYU assets as key factors that should support Sable Offshore's ability to generate strong FCF. Additionally, the analysis includes a net asset value (NAV) calculation, which suggests that SOC's current stock price implies a 29% discount rate (DR).
The discount in Sable Offshore shares is due to regulatory challenges the company has faced. However, with the recent approval of the Line 324/325 pipelines by the Office of the State Fire Marshal (OSFM), the company's next step is to obtain permits from Santa Barbara County for the installation of safety valves.
A hearing in Sable Offshore's case against the county is scheduled for August 20, 2024, and Jefferies expects a settlement that will lead to the necessary approval of the permit.
Management at Sable Offshore expects the SYU asset to resume operations as early as the fourth quarter of 2024. The company is under a deadline to renovate its assets and pay the installment loan (PIK) that arises. Exxon Mobil (NYSE:) in January 2026 to prevent XOM from restocking. This situation was described by the analyst as creating a high risk/reward profile for the company.
In other recent news, the environmental program of Sable Offshore Corp. 2021 has been supported by the California Office of State Fire Marshall (OSFM). The decision comes after Sable Offshore's efforts to comply with California State Assembly Bill 864, which aims to reduce the environmental impact of oil spills.
Following the denial of the required permits by Santa Barbara County, Sable Offshore submitted a Supplemental Plan that OSFM deemed less effective in protecting the environment than the original 2021 Plan.
Currently, Sable Offshore and Santa Barbara County are in negotiations to address the permit denial, which has led to ongoing litigation. OSFM's reaffirmation of the effectiveness of the 2021 Plan in reducing potential damage to the environment underscores these discussions.
In accordance with OSFM's directive, Sable Offshore is moving forward with pipeline repairs, construction of new pumping stations, and installation of control facilities on lines 324 and 325.
These changes are in preparation for the expected restart of the Las Flores Canyon processing facilities and the offshore production platforms of the Santa Ynez Unit.
The company aims to resume operations in late 2024. These are the latest developments in the company's ongoing environmental compliance efforts.
InvestingPro Insights
As Sable Offshore Corp. (NYSE: SOC) is positioning itself for a return to business with SYU stock, real-time data from InvestingPro paints a clear picture of the company's financial health. Sable Offshore's market capitalization reaches $853.76 million, which reflects the company's current investor base. Despite the challenges, Sable Offshore has seen strong returns over the past three months, with a price return of 28.77%, reflecting positive investor sentiment in the short term.
However, InvestingPro Tips suggests caution. The company's gross profit margins are considered weak, with the last twelve months from Q1 2024 showing a measly $0.16 million in gross profit. Additionally, analysts are pessimistic about profits in the near term, expecting a decline in revenue this year, and the company has not made a profit in the past twelve months. On the bright side, Sable Offshore's liquid assets exceed its short-term obligations, which could provide some financial flexibility as it navigates regulatory hurdles and works to restart operations at SYU.
For investors considering Sable Offshore as an addition to their portfolio, it is important to note that the company does not currently pay a dividend, which may deter those looking for regular income. However, for those with an appetite for risk and a focus on capital gains, the potential upside revealed in recent price movements and Jeffery's price target may be attractive. More insights and more InvestingPro tips can be checked out by investors looking for in-depth analysis on
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