BofA Upgrades Kosmos Energy Stock After Comparison With Tullow Oil

The sale and leaseback of the FPSO unit in the second quarter of 2021 is likely to boost confidence in Kosmos Energy Ltd KOS, with underlying free cash flows no longer being consumed by LNG capital expenditure commitments, according to BofA Securities.

The Kosmos Energy Analyst: Matthew Smith upgraded the rating for Kosmos Energy from Neutral to Buy, while raising the price target from $3.50 to $3.70.

The Kosmos Energy Thesis: While Kosmos Energy has the same market cap, net debt and group production levels as Tullow Oil plc TUWLF, it has an additional advantage in the form of its “material and differentiated LNG growth story via Tortue, first gas due in 2023,” Smith said in the upgrade note.

“On current FCFs, the delta is even starker to us,” he noted. “We think Tullow’s debt and operational problems in Ghana has heavily weighed on Kosmos’ valuation. Yet Kosmos is a highly cash generative company with three major production hubs (Tortue to soon make four),” the analyst added.

“Excess FCF allows for reinvestment opportunities too and Kosmos has a deep hopper of exploration opportunities, particularly in the GoM. Its LNG pivot is also a clear differentiator versus our wider EMEA E&P coverage: giving a line of sight on >20yrs of robust cash flows,” Smith further wrote.

KOS Price Action: Shares of Kosmos Energy had risen by 2.55% to $3.02 at the time of publication Monday morning.

(Photo by Jirí Fröhlich via Pixabay)