Is It Time To Reassess EOG Resources (EOG) After Recent Share Price Recovery?

• If you are wondering whether EOG Resources at around US$112 per share still offers value, you are not alone. This article will focus on what the numbers say about that question.
• The stock has returned 3.5% over the last 7 days and 4.5% over the last 30 days, while the 1 year return stands at a 7.6% decline and the 5 year return is 152.9%.
• Recent market attention on EOG Resources has centered on how energy names are being priced against long term commodity expectations and capital allocation policies. That backdrop has helped frame recent price moves as investors reassess what they are willing to pay for established producers compared to other parts of the energy sector.
• EOG Resources currently has a valuation score of 5/6. Next, we will look at what different valuation methods say about that score, before finishing with a framework that can help you make even more sense of the valuation picture.

Find out why EOG Resources's -7.6% return over the last year is lagging behind its peers.

Approach 1: EOG Resources Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business is worth today by projecting its future cash flows and discounting them back to the present. It is essentially asking what EOG Resources’ future cash generation is worth in today’s dollars.

For EOG Resources, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The company’s latest twelve month free cash flow is about $4.1b. Analyst inputs are provided for the next several years, and beyond that Simply Wall St extrapolates the figures, with projected free cash flow of $5.8b in 2030 and further estimates extending to 2035.

Bringing all of those projected cash flows back to today gives an estimated intrinsic value of about $254 per share. Compared with a share price around US$112, the model output indicates the stock is 55.9% undervalued according to this DCF assessment.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests EOG Resources is undervalued by 55.9%. Track this in your watchlist or portfolio, or discover 876 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for EOG Resources.

Approach 2: EOG Resources Price vs Earnings

For a profitable company like EOG Resources, the P/E ratio is a useful way to see what the market is paying for each dollar of current earnings. Investors tend to accept a higher or lower P/E depending on what they expect for future earnings growth and how risky they think those earnings are.

EOG Resources currently trades on a P/E of 11.00x. That sits below the Oil and Gas industry average P/E of 13.66x and also below the peer average of 13.84x, which suggests the market is assigning a lower earnings multiple to EOG than to many comparable names.

Simply Wall St’s Fair Ratio is a proprietary estimate of what EOG Resources’ P/E could be, based on factors such as its earnings growth profile, profit margins, industry, market cap and key risks. This Fair Ratio for EOG Resources is 21.44x, which is higher than the current 11.00x P/E. Because the Fair Ratio is tailored to the company’s own characteristics rather than just broad peer or sector averages, it can offer a more company specific view of value. On this basis, EOG Resources currently appears undervalued on earnings.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your EOG Resources Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple tool that lets you attach a clear story to your numbers by linking your view on EOG Resources’ future revenue, earnings and margins to a financial forecast and then to a fair value estimate. On Simply Wall St, Narratives live on the Community page that is used by millions of investors, and they make it easier for you to compare your Fair Value with the current share price so you can decide whether the gap between the two is large enough for you to consider buying or selling. Because Narratives update automatically when new information, such as company news or earnings releases, is added to the platform, your story and valuation stay current without extra work from you. For example, one EOG Resources Narrative on the Community page might assume very conservative revenue growth and margins and arrive at a lower fair value, while another uses more optimistic assumptions and reaches a higher fair value, which shows how different but clearly defined views can sit side by side on the same stock.

Do you think there's more to the story for EOG Resources? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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