Mizuho cuts EOG rating on lower cash margins amid weakening oil productivity

Investing.com -- Mizuho downgraded EOG Resources Inc (NYSE:EOG) to Neutral from Outperform and cut its price target to $140 from $148 on declining cash margins and deteriorating well productivity.

Mizuho updated its model after EOG’s year-end 2024 disclosures, reflecting a decline in net asset value.

The brokerage said EOG’s 2025 cash flow from operations guidance of about $10.9 billion, or $26.59 per barrel of oil equivalent (boe), is about 14% below the 2022-2024 average of roughly $30.79/boe, even after adjusting for commodity price changes.

The decline was due to higher cash taxes, commodity mix changes, and increased operating costs.

Mizuho flagged deteriorating oil productivity in EOG’s key plays.

“While 6-mo cumulative oil productivity in the Delaware has been stable since 2021, the rate of decline seems accelerated beyond Year 1 in 2023-24 vintage wells,” the firm said.

Additionally, Eagle Ford oil productivity has declined since 2022, leading to lower estimates for developed and undeveloped reserves.

While EGO stock is trading at a premium.

EOG’s stock has outperformed large-cap peers by roughly 10% since 2024.

“At current prices, EOG offers ~13% upside to our updated NAV based PT compared to an average of ~36% for large-cap, oily peers. Thus, we move to the sidelines and downgrade EOG to Neutral,” Mizuho noted.

Peers include ConocoPhillips (NYSE:COP), Occidental Petroleum (NYSE:OXY), Diamondback (NASDAQ:FANG) Energy, Devon Energy (NYSE:DVN), and Coterra Energy (NYSE:CTRA).

Mizuho noted that EOG’s strong net cash position of ~$2.3 billion at year-end 2024 could enable management to return cash to shareholders counter-cyclically and support the stock.

Additionally, EOG’s strong operational track record could lead to better-than-expected guidance, validating the stock’s modest premium.

Mizuho values EOG shares at $140. EOG is expected to report a slight beat on Q1 2025 EBITDA and free cash flow estimates, with Mizuho forecasting a ~1% and ~4% upside, respectively.