California Resources stock is poised to grow with CCS catalysts, says Stephens By Investing.com
On Tuesday, Stephens initiated coverage on California Resources Corporation (NYSE:) stock with an Overweight rating, consistent with a 12-month price target of $73.00.
The company's analyst cited the company's emerging Carbon Capture and Storage (CCS) business as a key driver of diversified growth, which is expected to support the stock's high valuation.
The analyst pointed out that CCS's new California Resources business is expected to use the company's vast land, existing energy infrastructure, and more than 350 million tons of pore space to provide solutions that meet California's carbon neutrality goals. This is very important as the state sees an increase in the demand for electricity.
The integration of the CCS business with California Resources' existing low-capital oil and gas operations appears to be a positive proposition, as it provides supportive free cash flow (FCF). The analyst's opinion reflects confidence in the company's ability to capitalize on the growing demand for carbon neutral solutions in California.
Overweight rating indicates that Stephens believes the California Resources stock has higher potential to return compared to the analyst's average return to the stock. The target price of $73.00 represents a significant upside from the company's current trading levels and is based on a Net Asset Value (NAV) approach.
Investors and market watchers will likely monitor California Resources' performance closely, particularly in relation to the development and impact of its CCS business on its overall financial health and market value.
In other recent news, the California Resources Corporation (CRC) has made major strides in carbon capture and storage. The company received unanimous approval from the Kern County Board of Supervisors for its Carbon TerraVault I project, marking a milestone in CRC's carbon management strategy.
The project, slated to be California's first carbon capture and storage effort, is expected to store more than 1 million tons of CO2 per year.
At the same time, the CRC was working hard financially. The company reported $139 million in adjusted EBITDAX and $63 million in free cash flow in the second quarter, returning $57 million to shareholders. CRC also projects a significant increase in cash flow in the second quarter of 2024, with an expected adjusted EBITDAX of approximately $1 billion.
Analysts reacted positively to these developments. UBS initiated coverage on CRC with a buy rating, citing the company's diverse assets and strengths in the capture and storage sector. Mizuho Securities maintained an Outperform rating on CRC, expressing confidence in the company's strategic plans and carbon management capabilities.
In addition, CRC has decided to consider its cash tender offer to purchase a portion of its 7.125% senior notes due 2026. This move is part of CRC's strategy to manage the 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 profits and improving shareholder value. These are among the latest developments that highlight CRC's strategic direction and commitment to driving long-term growth and shareholder value.
InvestingPro Insights
California Resources Corporation's (NYSE:CRC) focus on Carbon Capture and Storage (CCS) aligns well with its financial position and market performance. According to InvestingPro data, the company has a market capitalization of $4.5 billion and operates with a limited level of debt, which can provide flexibility for its CCS plans.
The company's dividend strategy is notable, as InvestingPro Tips highlights that CRC has increased its dividend for 3 years in a row. This is coupled with a current dividend yield of 3.07% and an impressive dividend growth of 37.17% over the last twelve months, which is likely to attract income-oriented investors.
Although the P/E ratio stands at 21.14, indicating a premium valuation, this may be justified by the company's growth prospects in the CCS sector. The bearish analyst position is also supported by CRC's profit, as InvestingPro Tips shows that the company has made a profit in the last twelve months and analysts predict a continuation of the profit this year.
For investors looking for a deeper understanding of CRC's strengths, InvestingPro offers 7 additional tips that can provide valuable insights into the company's financial health and market conditions.
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