Should You Hold EOG Resources (EOG) Stock In Your Portfolio?

We issued an updated research report on EOG Resources Inc. EOG on Mar 17, 2017. The company is a leading upstream energy player with an attractive growth profile and a huge inventory of drilling opportunities. However, weak oil remains an overhang on the stock.

As a result, the company carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EOG Resources holds premium acreages in three prospective oil plays in the U.S. – the Permian, Bakken and Eagle Ford shale plays. We believe that the company is well poised for production growth from those resources in the future.

During fourth-quarter 2016, the company reported narrower-than-expected loss owing to increased liquid production. The company incurred fourth-quarter adjusted loss of 1 cent per share, narrower than both the Zacks Consensus Estimate of a loss of 16 cents and year-ago quarter loss of 27 cents.

The company has projected 2017 capital spending in the range of $3.7–$4.1 billion. The investment will be made for the completion of net 480 wells compared with 445 wells in 2016. The development on this front is anticipated to boost the company’s production in the near term. This is indicated by the company’s guidance of crude volume growth of 18% this year.

These strong fundamentals are reflected in EOG Resources’ current price chart, which shows that its shares outperformed the Zacks categorized Oil & Gas-U.S Exploration and Production industry over the last one year. During the aforesaid period, EOG Resources’ shares gained almost 27% while the broader industry registered an increase of 12.1%.

However, oil prices remain way below the level reached in mid-2014, in spite of having recovered from the mid-February lows. The commodity prices weakness is likely to adversely impact the company’s upstream operations. We note that other firms from the same space, such as Cimarex Energy Co. XEC, Devon Energy Corporation DVN and Pioneer Natural Resources Company PXD, to name a few, face the same headwinds.

Moreover, in terms of EV/EBITDA ratio – which is one of the best multiples for valuing oil and gas companies because these energy firms have a large amount of debt and EV (Enterprise Value) – EOG Resources seems overvalued. The company currently has a trailing 12-month EV/EBITDA ratio of 23.71, which is above the industry level of 14.21.

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Devon Energy Corporation (DVN): Free Stock Analysis Report
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report
EOG Resources, Inc. (EOG): Free Stock Analysis Report
Cimarex Energy Co (XEC): Free Stock Analysis Report
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