Is EOG Stock Still Attractive?

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Trefis
EOG: EOG Resources logo
EOG
EOG Resources

After OPEC’s extended production curtailments, crude oil prices rallied from $50/bbl in January to $60/bbl at present – triggering a rally in oil stocks including EOG Resources (NYSE: EOG). The company’s premium drilling strategy has been supporting higher production despite a reduction in net operating wells. As the company did not slash dividends to improve capital efficiency and preserve cash, the stock has been a key choice to play oil demand recovery. However, Trefis believes that EOG stock has reached its near-term potential largely due to lower benchmark price expectation by the EIA and a likelihood of higher production by OPEC. Also, high crude oil inventory levels and a slump in travel demand continue to weigh on rig-count figures. Trefis highlights the historical trends in revenues, earnings, and stock prices in an interactive dashboard analysis on EOG Earnings Preview: How Did EOG Fare In 2020?

Q4 2020 revenues to drop by 34% (y-o-y)

After observing a steep 76% (y-o-y) decline during the second quarter, the company’s fourth-quarter revenues are expected to show a substantial improvement for the fourth quarter. However, the $2 billion of impairment charges are expected to be a drag on the full year 2020 earnings. As the company’s U.S. operations contribute 94% of crude oil production volumes, lower production costs coupled with stable benchmark prices from OPEC mandated cuts are likely to support the top line in 2021.

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EOG stock has almost reached pre-Covid levels

EOG stock declined from levels of around $77 in February 2020 (pre-crisis peak) to levels of around $34 in March 2020 (as the markets bottomed out), implying EOG stock lost 55% from its approximate pre-crisis peak. With the easing of restriction measures and OPEC mandated cuts, the stock gained 95% to reach $67 and we believe that it has reached its near-term potential. In comparison, the S&P 500 Index first fell 34% as Covid-19 cases accelerated outside China and gained 73% after the Fed’s intervention coupled with Pfizer’s vaccine launch.

 

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