Morgan Stanley analyst Devin McDermott downgraded the rating on Civitas Resources to a Hold today, setting a price target of $40.00.
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Devin McDermott has given his Hold rating due to a combination of factors that reflect the current performance and future outlook of Civitas Resources. The stock has shown a significant rally, outperforming its peers, which has been bolstered by shareholder-friendly actions such as accelerated share repurchases and the resumption of buybacks. However, the impact of these actions is expected to diminish in the near term, with buybacks projected to decrease substantially in the upcoming quarter.
Additionally, while Civitas’s free cash flow to equity yield is higher than its peers, its free cash flow to enterprise value yield aligns more closely with the industry average due to its higher leverage. The company’s net debt to EBITDAX ratio is anticipated to remain above the broader industry average, which tempers the attractiveness of its valuation. Furthermore, with limited near-term catalysts and some uncertainty surrounding leadership, McDermott sees a more balanced risk-reward profile, justifying the Hold rating.