On Wednesday, Barclays initiated coverage on California Resources Corporation (NYSE:CRC) stock, a prominent oil and gas producer, with an Equal Weight rating and set a price target of $62.00.
The company, which is set to become the largest producer in California upon the completion of its merger with Aera Energy later in the second half of 2024, is navigating through a complex regulatory environment, particularly following a recent court ruling that restricts drilling permits in Kern County, CRC's primary operating region.
The ruling has prompted a scenario where California Resources may have to rely on existing developed reserves, with limited investment in new developments until regulatory clarity is achieved.
Barclays noted that despite these challenges, the Aera Energy acquisition is expected to be significantly beneficial to California Resources' free cash flow yield, cash flow, and net asset value multiples. The bank's price target reflects a 13% discount to the firm's calculated proved developed net asset value (NAV), which includes value from the Elk Hills power plant and real estate sales.
California's forward-looking climate policies also present opportunities for California Resources in the energy transition space. The company is currently developing a carbon management business, leveraging its extensive mineral rights, technical expertise, and experience with California's complex regulatory framework. However, Barclays expressed a desire for more clarity on the financing and de-risking of future projects in this area before assigning a more optimistic valuation.
Barclays' initiation of coverage on California Resources comes at a time when the company is redefining its role in an industry undergoing significant changes. The analyst's comments underscore the balance between the risks associated with operating in a stringent regulatory environment and the potential upsides from strategic acquisitions and diversification into new business areas related to energy transition.
InvestingPro Insights
As California Resources Corporation (CRC) positions itself to become California's largest oil and gas producer, real-time data from InvestingPro provides additional context for investors considering the company's prospects. With a market capitalization of $3.9 billion and a P/E ratio of 6.95, CRC appears to be trading at a low price-to-earnings ratio relative to its near-term earnings growth potential. The company's PEG ratio, which stands at 0.45 as of the last twelve months ending Q4 2023, suggests that the stock may be undervalued when considering its earnings growth rate.
InvestingPro Tips highlight that CRC has raised its dividend for three consecutive years, reflecting a commitment to returning value to shareholders. Additionally, the company's liquid assets exceed its short-term obligations, indicating a solid liquidity position that could reassure investors of its ability to meet immediate financial needs. Moreover, CRC is trading near its 52-week high, with a price percentage of 95.35% of that peak, which may signal confidence among investors.
For those interested in a deeper analysis, there are more InvestingPro Tips available, providing further insights into CRC's financial health and market performance. To explore these additional tips and make more informed investment decisions, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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