Optimized Investments And Eagle Ford Addition Will Strengthen Future Position

Key Takeaways

• Strategic capital expenditure reduction aims to enhance free cash flow while enabling moderate oil growth and increased natural gas production.
  
• Expansion through acquisitions and international projects aims to boost drilling capacity and revenue diversification, potentially enhancing future earnings.
  
• Potential oversupply and tariff challenges may impact EOG's revenue growth and margins, despite efforts to maintain low-cost structures amid macroeconomic uncertainties.

Catalysts

Explores for, develops, produces, and markets crude oil, natural gas liquids, and natural gas in producing basins in the United States, the Republic of Trinidad and Tobago, and internationally.

• EOG Resources is optimizing its 2025 capital investment plan by reducing capital expenditures by $200 million. This strategic move is expected to enhance free cash flow while still delivering approximately 2% year-over-year oil growth, impacting free cash flow.
  
• The company expects a 12% year-over-year increase in natural gas production, driven by LNG demand and increased power needs. This focus on natural gas should improve overall revenue and free cash flow.
  
• EOG has added a strategic bolt-on acquisition in the Eagle Ford, which enhances drilling inventory and operational efficiency. This should positively affect future earnings and margins due to the high quality and quantity of the resource.
  
• The company is maintaining flat oil production through 2025, while keeping activity levels in key emerging plays like Utica and Dorado steady, thereby optimizing costs and improving productivity, which could better net margins.
  
• Continuing international expansion with exploration efforts in Trinidad and upcoming drilling in Bahrain in 2025, positions EOG to diversify its revenue base and potentially increase earnings.

EOG Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EOG Resources's revenue will decrease by 1.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 25.9% today to 23.4% in 3 years time.
• Analysts expect earnings to reach $5.7 billion (and earnings per share of $11.15) by about May 2028, down from $6.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $7.3 billion in earnings, and the most bearish expecting $4.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.4x on those 2028 earnings, up from 9.8x today. This future PE is greater than the current PE for the US Oil and Gas industry at 11.3x.
• Analysts expect the number of shares outstanding to decline by 5.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

EOG Resources Future Earnings Per Share Growth

Risks

• Ongoing discussions regarding tariffs have softened oil prices, potentially impacting EOG's revenue and free cash flow due to near-term demand impacts.
  
• The decision to reduce capital expenditures by $200 million highlights concerns about a potentially oversupplied market, which could affect long-term revenue growth prospects.
  
• Flexibility in capital investments amid macroeconomic uncertainties may imply challenges in maintaining consistent volume growth, impacting long-term revenue generation.
  
• EOG's exposure to fluctuations in service prices for high-spec equipment could influence operating costs negatively, affecting net margins.
  
• The emphasis on maintaining low-cost structures might be challenged by potential tariff impacts in 2026, which could increase operational costs and impact earnings.

Valuation

• The analysts have a consensus price target of $135.474 for EOG Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $156.0, and the most bearish reporting a price target of just $114.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $24.2 billion, earnings will come to $5.7 billion, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $108.72, the analyst price target of $135.47 is 19.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.