Investors may wonder if EOG Resources Inc (EOG, Financial) is modestly overvalued given its daily gain of 2.42%, a 3-month gain of 20.73%, and an Earnings Per Share (EPS) of 14.84. This article seeks to answer this question by providing an in-depth valuation analysis of EOG Resources. So, let's dive in.
Company Introduction
EOG Resources, an oil and gas producer with acreage in several U.S. shale plays, including the Permian Basin, the Eagle Ford, and the Bakken, reported net proved reserves of 4.2 billion barrels of oil equivalent as of 2022. Its net production averaged 908 thousand barrels of oil equivalent per day in 2022, with a ratio of 73% oil and natural gas liquids and 27% natural gas. EOG Resources' stock price currently stands at $134.15, while its estimated fair value, the GF Value, is $117.55. This discrepancy paves the way for a deeper exploration of the company's value.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line, displayed on our summary page, represents the fair value at which the stock should ideally trade. If the stock price significantly surpasses the GF Value Line, it may be overvalued, and its future return could be poor. Conversely, if it falls significantly below the GF Value Line, it may be undervalued, with potential for higher future returns.
Based on this valuation method, EOG Resources appears to be modestly overvalued. Its stock price of $134.15 per share significantly exceeds the GF Value Line, suggesting that the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with poor financial strength can result in a higher risk of permanent loss of capital. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. EOG Resources' cash-to-debt ratio of 1.15 is better than 60.72% of 1021 companies in the Oil & Gas industry, and GuruFocus ranks its overall financial strength at 8 out of 10, indicating strong financial stability.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, is generally less risky. EOG Resources has been profitable 7 out of the past 10 years. Over the past twelve months, the company had a revenue of $25.10 billion and an Earnings Per Share (EPS) of $14.84. Its operating margin of 42.42% ranks better than 84.37% of 966 companies in the Oil & Gas industry, indicating strong profitability.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. EOG Resources' average annual revenue growth is 19.9%, which ranks better than 70.62% of 851 companies in the Oil & Gas industry. Its 3-year average EBITDA growth is 21.7%, which ranks better than 59.73% of 822 companies in the Oil & Gas industry.
Another way to assess a company's profitability is to compare its return on invested capital (ROIC) with its weighted average cost of capital (WACC). A company that generates a higher ROIC than its WACC is considered profitable. For the past 12 months, EOG Resources' ROIC is 25.6, and its WACC is 10.2, indicating strong profitability.
Conclusion
In summary, EOG Resources' stock appears to be modestly overvalued. Despite this, the company's financial condition is strong, and its profitability is robust. Its growth ranks better than 59.73% of 822 companies in the Oil & Gas industry. To learn more about EOG Resources stock, you can check out its 30-Year Financials here.
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