What’s Next For EOG’s Stock?

An energy company engaging in the exploration, development, production, and marketing of crude oil and natural gas, EOG Resources (NYSE: EOG) stock has been almost flat since the beginning of this year, compared to a 23% return of the S&P 500 over the same period. EOG’s peer Chevron Corporation (NYSE: CVX) is also nearly flat this year. And another competitor’s stock is down this year. See What’s Next for ConocoPhillips stock?

So what’s happening with EOG stock?

The company has a capital-intensive business model that is highly cyclical. In recent months, EOG’s stock price has been affected by the macroeconomic outlook and softer earnings. EOG’s stock may continue to tread water in the short term, as it highly depends on commodity pricing. Despite expectations of reflation and pro-growth policies under the new U.S. administration, oil prices have remained stagnant. A stronger U.S. dollar and high domestic production have weighed on the commodity recently. EOG intends to raise its total debt balance to a range between $5 and $6 billion in the next 12 to 18 months. Investors should closely monitor the company’s debt levels, as increasing market interest rates may pose a challenge. The company’s current earnings multiple of around 10x is below its own five-year average of around 13x. In the long run, we expect the company to benefit from increased crude oil and natural gas liquids production – particularly from Delaware and contribution from Dorado and Utica as they develop. That said, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

EOG beat estimates in third-quarter results. Its Q3 non-GAAP EPS of $2.89 topped the consensus mark of $2.77 while revenue of $6.0 billion, down 4% from the same period a year earlier, was a modest $20 million beat. The company’s GAAP earnings came in at $1.67 billion, or $2.95 per share compared to $2.03 billion, or $3.48 per share, in last year’s third quarter. EOG’s management team offset underwhelming top-line results by announcing plans to return capital to shareholders. The company raised its dividend by 7% and increased its share buyback authorization by $5 billion. As for its crude oil production, that figure increased by nearly 8% year-over-year (y-o-y) to 1.07 million boe/day, while its natural gas liquids production jumped by 10% to $254k barrels of oil equivalent per day (boe/day),

EOG is on track to exceed not only its minimum cash return commitment of 70% of annual free cash flow but also last year’s cash return of 85%. During the third quarter, its average crude oil price fell 8% to $76.95 per barrel and its average natural gas price declined 30% to $1.84 per Mcf. EOG’s crude oil and condensate volumes rose 3% to 493K boe/day in Q3 from 483K boe/day a year ago.

The increase in EOG stock over the last 3-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 89% in 2021, 57% in 2022, and -2% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

We forecast EOG’s Revenues to be $19.5 billion for the fiscal year 2024, up 12% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $11.49. Given the changes to our revenues and earnings forecast, we have revised our EOG’s Valuation to about $135 per share, based on $11.49 expected EPS and an 11.8x P/E multiple for the fiscal year 2024 – 14% higher than the current market price (Dec 19).

It is helpful to see how its peers stack up. EOG Resources Peers shows how EOG stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 12/19/2024
[2] Cumulative total returns since the end of 2016

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