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Oil Above $110, EOG Up 36% YTD: Is the Stock Still a Buy?
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Key Takeaways
EOG is up 36.3% YTD as WTI trades above $110 a barrel amid the ongoing Middle East war.
EOG's multi-basin portfolio holds up to 12B boe resources, supporting strong cashflows for shareholders.
EOG targets $2.2B in regular dividends, but 100% free-cash payouts leave smaller reserves for weak cycles.
EOG Resources Inc (EOG - Free Report) has jumped 36.3% year to date (YTD), outpacing the 34.4% growth of the industry’s composite stocks, and 35.8% and 30.5% improvements of its peers Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) , respectively.
Image Source: Zacks Investment Research
The outperformance might reflect strong market confidence in EOG’s prospects, especially when the pricing scenario of oil is extremely favorable. However, for investment conclusions, one should have a thorough assessment of the company’s fundamentals, growth potential and prevailing market conditions.
High Oil Price & EOG’s Key Upstream Assets
West Texas Intermediate (WTI) crude is trading at more than $110 per barrel, according to data from oilprice.com, owing to the ongoing war in the Middle East. With EOG generating the maximum proportion of revenues from crude oil and condensate, the high price of the commodity is extremely favorable for the leading oil and gas exploration and production company, like other energy giants, such as XOM and CVX.
The prolific multi-basin portfolio of EOG Resources comprises as much as 12 billion barrels of oil equivalent resources. With oil prices likely to remain high, per the U.S. Energy Information Administration, the company, with its diversified set of oil & gas assets, is expected to continue to generate handsome cashflows for its shareholders.
The company has a low exposure to debt capital and hence can rely on its balance sheet to sail through all the business cycles efficiently. Compared to composite stocks in the industry, EOG has lower debt exposure, reflected in debt to capitalization of 21.01% compared with the industry’s 49.98%.
Image Source: Zacks Investment Research
To highlight the upstream player’s strong commitment to return shareholders’ capital, the company has never suspended or lowered dividend payments. In fact, EOG has been paying dividends for 28 years and plans to reward investors with $2.2 billion of regular dividend payments this year.
Should Investors Bet on the Stock?
Coming to the valuation story, EOG is currently considered cheap on a relative basis, with the stock trading at a 7.11x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a discount compared with the broader industry average of 12.03x. EOG also appears cheaper compared to integrated giants such as XOM and CVX, which are currently trading at 10.39x and 10.24x trailing 12-month EV/EBITDA, respectively.
Image Source: Zacks Investment Research
Despite all the favorable factors aiding EOG, which is currently undervalued, investors shouldn’t rush to bet on the stock right away. This is because of its aggressive shareholder return policy. With the company having returned 100% of its free cash to the shareholders, the upstream player is retaining lower cash reserves that could save it during bad phases of its business.
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Oil Above $110, EOG Up 36% YTD: Is the Stock Still a Buy?
Key Takeaways
EOG Resources Inc (EOG - Free Report) has jumped 36.3% year to date (YTD), outpacing the 34.4% growth of the industry’s composite stocks, and 35.8% and 30.5% improvements of its peers Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) , respectively.
The outperformance might reflect strong market confidence in EOG’s prospects, especially when the pricing scenario of oil is extremely favorable. However, for investment conclusions, one should have a thorough assessment of the company’s fundamentals, growth potential and prevailing market conditions.
High Oil Price & EOG’s Key Upstream Assets
West Texas Intermediate (WTI) crude is trading at more than $110 per barrel, according to data from oilprice.com, owing to the ongoing war in the Middle East. With EOG generating the maximum proportion of revenues from crude oil and condensate, the high price of the commodity is extremely favorable for the leading oil and gas exploration and production company, like other energy giants, such as XOM and CVX.
The prolific multi-basin portfolio of EOG Resources comprises as much as 12 billion barrels of oil equivalent resources. With oil prices likely to remain high, per the U.S. Energy Information Administration, the company, with its diversified set of oil & gas assets, is expected to continue to generate handsome cashflows for its shareholders.
EOG’s Pristine Balance Sheet & Strong Dividend Commitments
The company has a low exposure to debt capital and hence can rely on its balance sheet to sail through all the business cycles efficiently. Compared to composite stocks in the industry, EOG has lower debt exposure, reflected in debt to capitalization of 21.01% compared with the industry’s 49.98%.
To highlight the upstream player’s strong commitment to return shareholders’ capital, the company has never suspended or lowered dividend payments. In fact, EOG has been paying dividends for 28 years and plans to reward investors with $2.2 billion of regular dividend payments this year.
Should Investors Bet on the Stock?
Coming to the valuation story, EOG is currently considered cheap on a relative basis, with the stock trading at a 7.11x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a discount compared with the broader industry average of 12.03x. EOG also appears cheaper compared to integrated giants such as XOM and CVX, which are currently trading at 10.39x and 10.24x trailing 12-month EV/EBITDA, respectively.
Despite all the favorable factors aiding EOG, which is currently undervalued, investors shouldn’t rush to bet on the stock right away. This is because of its aggressive shareholder return policy. With the company having returned 100% of its free cash to the shareholders, the upstream player is retaining lower cash reserves that could save it during bad phases of its business.
However, those who have already invested may hold the stock, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.