On Wednesday, Piper Sandler initiated coverage on Civitas Solutions (NYSE:CIVI), assigning the stock an Overweight rating and setting a price target of $92.00. The firm highlighted Civitas Solutions as a DJ Basin pure play company that has delivered one of the most robust oil-driven returns in the exploration and production (E&P) sector.
The new coverage points out Civitas Resources' strategic move to leverage its underlevered balance sheet by expanding into the Permian Basin, an area where Piper Sandler sees potential for performance optimization. According to the firm, this expansion could provide upside opportunities for the company.
The firm's analysis suggests that Civitas Solutions is currently undervalued, with its stock trading at a discount compared to its small to mid-size (SMID) oil peers based on the 2024 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) metric. This valuation gap is seen despite the company delivering one of the strongest total shareholder returns (TSRs) within Piper Sandler's coverage.
Additionally, the firm acknowledges Civitas Solutions' capacity to capitalize on value-enhancing consolidation opportunities in the Permian Basin. This approach could potentially bolster the company's market position and enhance its financial performance.
Piper Sandler's coverage initiation and price target are based on the firm's positive outlook for Civitas Solutions' strategic initiatives and its financial metrics relative to industry peers. The Overweight rating indicates the firm's confidence in the company's future performance and stock valuation.
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