On Thursday, JPMorgan (NYSE:JPM) analysts increased the price target for Vital Energy (NYSE:VTLE) to $34 from the previous $30 while maintaining an Underweight stock rating. The firm anticipates a financial outperformance for Vital Energy in the fourth quarter, driven by strong operational results and higher-than-expected natural gas pricing.
Vital Energy is reportedly concentrating on maintaining stable production volumes and generating free cash flow (FCF) to reduce debt. The company has shifted focus away from mergers and acquisitions, aiming instead to organically replenish its inventory by exploring new zones, such as the Barnett in Crane County, and cutting drilling and completion (D&C) costs. This strategy includes a reduction in the 2025 D&C cost target in the Delaware Basin to $905 per foot, a decrease from the third quarter's target of $930 per foot and current costs of approximately $990 per foot.
Analysts estimate that Vital Energy's cash flow per share (CFPS) will reach $8.54 for the quarter, which is 5% higher than the street estimate (STe) of $8.11. The firm's EBITDA estimate of $370 million is also 4% above the STe of $357 million. Furthermore, the projected fourth-quarter oil production is 68.9 thousand barrels of oil per day (MBo/d), slightly surpassing the STe of 68.4 MBo/d. Capital expenditure (capex) for the quarter is estimated at $199 million, which is above the STe of $190 million and aligns with the higher end of the company's guidance.
The forecast also includes an expectation for Vital Energy to report a fourth-quarter free cash flow of $122 million. JPMorgan predicts that the company will benefit from higher natural gas pricing than initially guided for the fourth quarter due to improved Waha pricing throughout the period. The analysts have modeled a natural gas price realization of $0.61 per thousand cubic feet (Mcf), which is an improvement from the third quarter's -$0.48 per Mcf.
In terms of operating expenses, Vital Energy's lease operating expense (LOE) estimate is set at $9.30 per barrel of oil equivalent (boe), slightly below the company's guidance of $9.35 per boe. The company has also expressed confidence in reducing LOE to below $9 per boe by the end of 2025. Following the update on recent strip pricing, JPMorgan reiterated its Underweight rating and adjusted the December 2025 price target to the new level of $34.
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