EOG Resources Positioned for Strong Growth Ahead

EOG Resources (NYSE: EOG) stands out as a dynamic, diversified energy company set to achieve new financial heights by 2025. Despite facing various challenges, the firm is increasing its production, enhancing operational efficiency, and maintaining strong cash flow and free cash flow (FCF) growth. These factors contribute to its strong capital returns for investors. In its Q4 guidance, EOG anticipates further improvements, with potential catalysts that could drive stock prices upward in 2025. Analysts predict a rebound in growth, and their stock price estimates are on the rise after reaching lows earlier this year.

Enhanced Capital Returns Through Dividends and Buybacks

EOG Resources is committed to returning value to its shareholders via dividends and stock buybacks. Recently, the company announced a 7% increase in its dividend distribution, along with an added $5 billion to its share repurchase authorization, which is approximately 7% of its market capitalization, with shares trading near $125.

For Q3, EOG met its capital return target of 85% of free cash flow. This figure is expected to remain consistent in Q4 and throughout fiscal 2025. Although total revenues declined, the company reported flat Q3 free cash flow compared to last year, resulting in a solid 25% FCF margin and a healthy balance sheet. The annualized dividend now stands at $3.90, providing about a 3% yield, while buybacks have reduced the average quarterly share count by over 2%.

One potential concern is the firm’s increased debt levels. Nonetheless, EOG’s balance sheet remains strong, with the uptick in debt aligned with historical trends helping boost cash resources to sustain capital returns. By the end of Q3, EOG boasts a net cash position and very low leverage, reported at about 0.15x equity, which adjusts to less than 0.3x with the anticipated debt increase, keeping the company in a robust financial state.

Cash Flow and Free Cash Flow Growth Despite Challenges

In Q3, EOG Resources performed reasonably well despite a 1% decline in revenues. The company is ramping up production in response to lower realized prices while striving for improved margins to bolster the bottom line. Key details include a rise in cash from operations, controlled spending, debt reductions, and an increase in cash and equivalents. Year-over-year results reflected a decline, yet earnings came in at $2.89, which was $0.12, or 430 basis points, above expectations. Moreover, the guidance surpassed consensus, indicating higher volumes and reduced costs.

The market reaction from analysts showed mixed feelings, with one rating reiterated and another downgraded. Nevertheless, the overall sentiment is positive. The reiterated rating includes an elevated price target above expectations, while the downgrade still suggests a price increase. Four analysts raised their targets, all indicating a stock price benchmark that exceeds current levels within the next 12 months. This is notable as the consensus suggests a potential 13% rise from early December prices, yielding a new all-time high.

Institutional Activity Influences EOG’s Stock Price

A key risk for EOG’s stock price lies in institutional investment trends. While institutions showed positive interest in the first three quarters of the year, their sentiment shifted to a bearish stance in Q4, limiting the stock’s price potential. Currently, EOG shares are trading within a sideways range, constrained by the fact that institutions hold around 90% of the stock. However, increased support within this range indicates that the market may be preparing for a significant upward shift.

Currently, critical support for EOG stock lies near the 150-day Exponential Moving Average (EMA), which has provided price support since 2021 and is expected to continue. It’s likely that the stock will retest this support level, potentially resulting in another price bounce. The uncertainty remains whether this bounce will gain traction, propelling the stock price higher, or if it will continue to trade sideways. If institutional activity turns positive, a movement towards new highs becomes plausible, with key resistance levels located near $140 and $149.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.