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On Friday, Citi initiated coverage on shares of Talos Energy (NYSE:) with a Buy rating and a price target of $16.50. The new target reflects the firm’s confidence in the oil and gas company’s balanced growth approach and operational potential.
The coverage launch by Citi highlights Talos Energy’s strategic mix of acquisition and organic growth, along with its operational upside. Citi’s price target is based on approximately 3.2 times the firm’s 2024 debt-adjusted cash flow (DACF) estimate and anticipates a free cash flow (FCF) yield of around 10%.
Citi acknowledges challenges faced by Talos Energy, such as its relatively small scale and lower reserve life compared to some peers. However, the firm believes that the company’s consistent strategy is key to managing these concerns.
The recent decline in Talos Energy’s stock price is attributed to market reactions to the company’s withdrawal from the carbon capture and storage (CCS) business and the downscaling of the Zama project. Citi considers these reactions to be exaggerated and expects the market to recognize the value of Talos Energy’s focus on growth and operational execution in future quarters.
Furthermore, Citi anticipates that advancements in technology within the industry will enhance Talos Energy’s operational performance. This view is underpinned by the belief that technological improvements will continue to emerge, benefiting Talos and the sector overall.
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