Oil & Gas Drilling company EOG Resources is taking Wall Street by surprise today, falling to $113.33 and marking a -3.4% change compared to the S&P 500, which moved 0.0%. EOG is -18.8% below its average analyst target price of $139.57, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, EOG Resources has underperfomed the S&P 500 by -19.9%, moving -4.6%.
EOG Resources, Inc., together with its subsidiaries, explores for, develops, produces, and markets crude oil, natural gas liquids, and natural gas in producing basins in the United States, the Republic of Trinidad and Tobago, and internationally. The company is an energy company. As investments, energy companies may display higher than average volatility because the price and availability of basic materials needed for production is dependent on geopolitical events. The shift towards renewable forms of energy may lessen this dependency, but is far from complete and may involve new risks of its own.
EOG Resources's trailing 12 month P/E ratio is 11.0, based on its trailing EPS of $10.31. The company has a forward P/E ratio of 10.2 according to its forward EPS of $11.06 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US energy companies is 18.35, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in EOG Resources's free cash flow, which was $11.12 Billion as of its most recent annual report. Over the last 4 years, the company's average free cash flow has been $8.94 Billion and they've been growing at an average rate of 7.1%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in EOG have received an annualized dividend yield of 3.3% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Eog resources's P/B ratio is 2.12 -- in other words, the market value of the company exceeds its book value by a factor of more than 2, so the company's assets may be overvalued compared to the average P/B ratio of the Energy sector, which stands at 1.6 as of the third quarter of 2024.
EOG Resources is likely undervalued at today's prices because it has a Very low P/E ratio, an average P/B ratio, and generally positive cash flows with an upwards trend. The stock has strong growth indicators because of its strong operating margins with a positive growth rate, and an average PEG ratio. We hope this preliminary analysis will encourage you to do your own research into EOG's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
