Yahoo Finance Here's Why Hold Strategy is Apt for EOG Resources (EOG) Stock
EOG Resources Inc. EOG has seen upward earnings estimate revisions for 2024 and 2025 in the past 30 days.
The company, currently carrying a Zacks Rank #3 (Hold), has gained 8.4% in the past three months compared with 6.3% growth of the composite stocks belonging to the industry.
Image Source: Zacks Investment Research
What’s Favoring the Stock?
EOG’s diversified portfolio of high-quality assets across multiple basins, including the Delaware Basin, Eagle Ford and Powder River Basin, ensures stable and scalable production. The company’s ability to maintain a low-cost, high-quality inventory through organic exploration positions it well for long-term growth. For instance, the Delaware Basin alone has seen significant productivity improvements, with reduced drilling days and increased lateral feet per day.
EOG Resources has demonstrated a robust financial performance, with consistent revenue generation and strong cash flow. In the first quarter of 2024, EOG reported a net income of $1.79 billion and generated $1.2 billion in free cash flow. This financial stability is a key indicator of the company’s operational efficiency and profitability, making it a compelling investment.
EOG's focus on operational excellence and cost management is evident through its low operating costs and efficient production processes. In the first quarter of 2024, the company achieved cash operating costs of $10.37 per barrel of oil equivalent, lower than the guidance mid-point, showcasing its ability to manage expenses effectively. EOG’s strategic investments in technology and innovation, such as the use of proprietary information technology and self-sourced materials, support its performance and cost control.
EOG has a strong record of returning cash to shareholders, which is a critical factor for investor confidence. In 2023, the company returned 85% of its free cash flow to shareholders through dividends and share repurchases. In the first quarter of 2024, it declared a regular quarterly dividend of 91 cents per share and repurchased $750 million of shares, demonstrating its commitment to shareholder returns.
EOG Resources' commitment to sustainability and resilience through strategic emissions reduction pathways and water reuse programs positions it favorably in the evolving energy landscape. The company’s initiatives to minimize greenhouse gas (GHG) emissions, including closed-loop gas capture and continuous methane monitoring, highlight its focus on environmental stewardship. Since 2018, EOG has significantly reduced its GHG intensity rate and increased its wellhead gas capture rate, which are critical metrics for sustainable operations.
The company’s capital discipline is a cornerstone of its investment strategy. It adheres to a premium hurdle rate of 30% at flat commodity prices, ensuring returns-focused investments. EOG’s ability to generate significant free cash flow while maintaining a pristine balance sheet underscores its financial prudence and operational efficiency. In the first quarter of 2024, the company generated $1.2 billion in free cash flow, reinforcing its capability to fund growth and return capital to shareholders.
EOG’s strategic positioning in the U.S. oil markets, with diversified sales to domestic refiners and export-linked capacity, provides a competitive advantage. The company’s marketing strategy, which includes multiple transportation options and firm capacity from wellhead to sales point, ensures flow assurance and maximized margins. EOG's ability to sell into multiple markets and control from wellhead to sales point results in significant revenue uplift and enhances its market resilience.
Risks
Governments, investors and stakeholders are increasingly prioritizing climate change initiatives, driving a surge in demand for renewable energy. As a result, the reliance on products derived from oil, natural gas, and natural gas liquids is projected to decrease, while solar and wind energy are expected to become more prominent in the energy sector. This shift negatively impacts EOG, as the company primarily focuses on producing fossil fuels like oil.
Stocks to Consider
Investors interested in the energy sector may look at some other top-ranked stocks like SM Energy Company SM, Marathon Petroleum Corporation MPC and Ecopetrol S.A. EC. SM Energy and Marathon Petroleum sport a Zacks Rank #1 (Strong Buy), and Eni carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
SM Energy is set to expand its oil-centered operations in the coming years with an increasing focus on crude oil, especially in the Permian Basin and Eagle Ford regions. The company’s attractive oil and gas investments can create long-term value for shareholders.
The Zacks Consensus Estimate for SM’s 2024 and 2025 earnings per share (EPS) is pegged at $6.63 and $7.46. The company has a Zacks Style Score of A for Value, and B for Growth and Momentum. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.
Marathon Petroleum's acquisition of Andeavor has expanded its foothold in the Permian Basin, creating an enviable retail and marketing portfolio. MPC’s emphasis on operational excellence, safety and environmental responsibility, coupled with investments in low-carbon initiatives, positions it well for sustainable growth and continued value creation for shareholders.
The Zacks Consensus Estimate for MPC’s 2024 and 2025 EPS is pegged at $19.28 and $16.78. The company has a Zacks Style Score of A for Value. It has witnessed upward earnings estimate revisions for 2025 in the past 30 days.
Ecopetrol operates across various sections of the oil and gas industry, including the exploration, development, and production of oil and gas, refining, transportation, and the sale of petroleum products.
Ecopetrol has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days. The company has a Zacks Style Score of B for Value and Growth. The Zacks Consensus Estimate for EC’s 2024 and 2025 EPS is pegged at $2.55 and $2.63, respectively.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
SM Energy Company (SM) : Free Stock Analysis Report
Ecopetrol S.A. (EC) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
