Tuesday, JPMorgan (NYSE:JPM) adjusted its price target for Magnolia Oil & Gas Corp. (NYSE:MGY) to $24.00 from $23.00, while keeping a Neutral rating on the stock. The firm anticipates a slight miss on cash flow and EBITDA for the third quarter of 2024 compared to the Street's expectations, due to commodity price changes.
JPMorgan forecasts Magnolia's third-quarter cash flow per share (CFPS) at $1.10, slightly below the Street's estimate of $1.14. The EBITDA estimate by the firm is $232 million, which is 4% lower than the Street estimate of $241 million. Oil production for the quarter is projected at 38.0 thousand barrels of oil per day (MBo/d), marginally lower than the Street's 38.2 MBo/d, with total production in line with the guidance of 91 million barrels of oil equivalent per day (MBoe/d).
The firm's capital expenditure (capex) estimate for the third quarter is $120 million, consistent with the Street's estimate and Magnolia's guidance. Magnolia achieved its lease operating expense (LOE) reduction target ahead of schedule in the second quarter and is expected to maintain flat LOE in the second half of 2024 at approximately $5.40 per barrel of oil equivalent (boe).
However, gathering, processing, and transportation (GP&T) costs are expected to rise due to higher natural gas prices, with an estimated GP&T of $1.18 per boe in the third quarter, up from $1.03 per boe in the second quarter.
Magnolia is anticipated to generate $99 million of free cash flow (FCF) during the quarter, with a projected cash return of $89 million. This includes a $0.13 per share quarterly dividend and $63 million in buybacks, which is more than the company's 1% quarterly target.
Notably, Magnolia repurchased 500,000 shares from Enervest towards the end of the quarter, following Enervest's sale of approximately 7.5 million shares, reducing their holding to the same amount.
Looking ahead to the full year 2025, JPMorgan expects Magnolia's total volumes to increase by 6% year-over-year to 95.4 MBoe/d, with oil volumes growing by 1% to 38.4 MBo/d. The firm predicts a slightly gassier production base over time due to more development in Giddings.
The capex for 2025 is modeled at $487 million, which is 2% above the Street's estimate of $476 million. Magnolia is forecasted to generate $364 million of FCF in 2025, yielding a 7.0% FCF yield. The updated December 2025 price target reflects recent strip pricing adjustments.
In other recent news, Magnolia Oil & Gas Corporation reported strong financial and operational performance for the second quarter. The company's total production increased by 10% year-over-year to approximately 90,000 barrels of oil equivalent per day. In a strategic move, Magnolia completed a bolt-on acquisition in Giddings, adding 27,000 net acres to its development area.
The company's cost reduction initiatives led to a 10% sequential decrease in operating costs, contributing to a robust return on capital employed of 18% over a five-year average. Magnolia also highlighted its commitment to efficient operations and shareholder value, with a $450 million revolving credit facility and total liquidity of approximately $726 million.
Analysts noted the company's strong capital efficiency and potential for growth, with projected 2024 D&C capital spending between $450 million and $480 million. Analyst Christopher Stavros suggested maintaining current levels as a fair forecast for the future.
InvestingPro Insights
Magnolia Oil & Gas Corp. (NYSE:MGY) is currently trading near its 52-week high, with a market capitalization of $5.38 billion. The company's P/E ratio of 13.23 suggests a relatively attractive valuation compared to industry peers. This aligns with JPMorgan's neutral stance on the stock, as the current price may already reflect much of the company's near-term potential.
InvestingPro Tips highlight that Magnolia has raised its dividend for three consecutive years, demonstrating a commitment to shareholder returns. This is particularly relevant given JPMorgan's projection of continued cash returns through dividends and share buybacks. The company's dividend yield stands at 1.93%, with a notable dividend growth of 13.04% over the last twelve months.
Additionally, Magnolia's strong return over the last month (14.55%) and year-to-date (28.95%) indicates positive market sentiment, which could be attributed to its solid financial performance and strategic capital allocation. These metrics provide context to JPMorgan's analysis of Magnolia's cash flow and production forecasts.
For investors seeking a deeper understanding of Magnolia's financial health and growth prospects, InvestingPro offers 7 additional tips, which could provide valuable insights into the company's long-term potential beyond the current analyst projections.
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