Zinger Key Points
- JP Morgan raised Talos Energy’s price target to $14, citing strong FCF and capital efficiency.
- Analyst sees potential for increased buybacks after hitting its FY24 debt target.
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JP Morgan analyst Arun Jayaram raised the price forecast for Talos Energy, Inc. TALO from $13.00 to $14.00 while retaining a Neutral rating.
Last month, the company reported fourth-quarter adjusted EPS of $0.08 , beating the consensus loss of $(0.02) and sales of $485.19 million, missing the consensus of $491.06 million.
The company sees the production of 90.0-95.0 MBoe/d, consisting of 69% oil and 79% liquids, for 2025.
Also, Talos projects production of 99.0-101.0 MBoe/d, with 68% oil volumes for the first quarter of 2025.
The analyst writes that the results underscored 1% higher oil volumes, 16%-12% lower capex, and a strong FCF beat vs. JPMe/STe, showcasing the strength of its asset base.
Jayaram notes that the company revealed a 2025 operational plan with fourth-quarter earnings, which showed greater capital efficiency than expected.
The FY25 capital expenditure is 13%-15% below JPMe/STe while volume is in line with the estimates, adds the analyst.
The analyst says that 2025 guidance may be conservative, factoring in ~6 MBoe/d of planned downtime and ~4 MBoe/d for weather/unplanned risks, suggesting production capacity closer to 100-105 MBoe/d.
Jayaram estimates projects FY25 production of 94 MBoe/d, with $630 million in total capex.
He also sees 65 MBo/d of oil volumes in 2025, with first-quarter expected at 69 MBo/d, remaining flat sequentially from fourth quarter of FY24.
At JPM 2025 oil and gas price deck of $69.86/bbl for oil and $3.53/Mcf for gas, Jayaram forecasts ~$350 million in FCF, which could support increased share buybacks now that TALO has met its FY24 debt target of $1.25 million.
With Paul Goodfellow as CEO as of March 1, the analyst says he looks forward to the company’s updated cash return strategy.
Price Action: TALO shares are down 2.28% at $8.16 at the last check Tuesday.
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