In the world of investing, insider buying is often seen as a strong signal of confidence in a company’s future performance. After all, when executives and board members put their own money on the line, it suggests they believe the stock is poised for growth. One such energy dividend stock that has caught the attention of insiders - and perhaps should catch the attention of investors - is Crescent Energy (CRGY).
Over the past month, Crescent Energy has attracted a flurry of insider buying, signaling strong confidence in the company’s future. The company’s CEO recently purchased 110,000 shares, adding to the growing list of insiders who are increasing their positions. It’s worth noting that CRGY also carries a “Strong Buy” rating from analysts, with plenty of room to rise toward its mean price target.
In this article, we’ll dive deeper into Crescent Energy’s fundamentals, explore the reasons behind the insider buying activity, and assess whether now is the right time to follow insiders into this energy dividend stock.
About Crescent Energy Stock
Crescent Energy Company (CRGY), based in Texas, is an energy firm specializing in acquiring, developing, and producing crude oil (CLV24), natural gas (NGV24), and natural gas liquids (NGLs) reserves. The company’s portfolio comprises low-decline, cash-flow-focused unconventional and conventional assets in the Eagle Ford and Uinta basins, characterized by long reserve lives and high-return development locations. Its market cap currently stands at $1.96 billion.
Shares of Crescent Energy have lost about 13% on a year-to-date basis, underperforming the Energy Select Sector SPDR Fund ETF’s (XLE) 6.4% gain over the same period.
Recent News for CRGY Stock
On Sept. 16, brokerage firm Mizuho reduced its price target for Crescent Energy to $13 from $14, while maintaining a “Neutral” rating on the shares. Mizuho lowered its commodity price forecast for the second half of 2024 through 2027, and decreased net asset value-based price targets by 7% across the oil and gas exploration group.
On Sept. 5, Wells Fargo raised its price target on Crescent Energy to $21 from $20, and kept an “Overweight” rating. The firm highlighted that the company is continuing to pursue its growth-through-acquisition strategy and strengthen its prominent position in the Eagle Ford region.
Wells Fargo had previously resumed coverage of CRGY as recently as Aug. 8, following its quarterly results. The firm pointed to CRGY's discounted valuation, asset base with low decline rates, differentiated growth strategy, and exposure to emerging markets as key factors in its bullish rating.
Crescent Energy Builds Eagle Ford Position
On Sept. 4, Crescent Energy disclosed that it had signed a definitive agreement to purchase assets from a private operator in the Eagle Ford region for $168 million in cash. This acquisition adds to the company’s active expansion in the area over the last 18 months, including the recent acquisition of SilverBow Resources.
Crescent stated that the acquisition of low-decline oil production, which boasts a compelling inventory, complements its existing operations in central Eagle Ford. The purchase is expected to enhance operating cash flow, levered free cash flow, and net asset value per share. The company noted that the transaction adds approximately 30 oil-weighted, core development locations across 5,300 net royalty acres.
“This transaction builds upon our momentum in the Eagle Ford, where we see substantial opportunity for further growth and compelling investment returns,” said Crescent CEO David Rockecharlie. “We are adding low-decline oil production and high-quality acreage adjacent to our existing position, with a meaningful opportunity to further increase returns through improved operating efficiency.”
Crescent Energy Insiders Intensify Bullish Bets on the Stock
Crescent Energy has experienced an increase in insider buying by various executives and insiders over the past month. In a regulatory filing, Crescent Energy disclosed that CEO David Rockecharlie acquired 10,000 shares of Class A common stock on Sept. 5, at a weighted average price of $11.07, totaling $110,699 for the transaction. Rockecharlie currently holds 110,000 shares of the company, which constitutes 0.2552% of the total outstanding shares.
Another notable purchaser of CRGY stock was director Michael Duginski, who executed two transactions in August. Duginski bought 10,000 shares of common stock at $11.09 on Aug. 23 for a total transaction size of $110,900. His previous purchase occurred on Aug. 9, when he bought 18,263 shares of common stock at $10.5614 in a transaction worth $192,883. Duginski now owns 220,000 shares of the company, representing 0.5104% of the total outstanding shares.
Several other executives also acquired shares of the company over the past month, though their purchases were more modest, amounting to approximately $10,000 each. These purchases demonstrate a solid dedication to the company’s future prospects.
How Did Crescent Energy Perform in Q2?
Crescent Energy reported its second-quarter earnings results on Aug. 5. The company’s total revenues rose 32.7% year-over-year to $653.28 million, surpassing Wall Street’s expectations by $31.48 million. The increase in total revenue was primarily driven by a 27% year-over-year surge in oil revenue due to higher sales volumes and increased realized oil prices. Notably, the increase in sales volumes was mainly attributed to Western Eagle Ford Acquisitions. CRGY’s GAAP EPS for the quarter was $0.33, exceeding analysts’ expectations by $0.10.
The company also showcased strong performance across key financial metrics, generating $320 million in adjusted EBITDA, $287 million in operating cash flow, and $147 million in levered free cash flow for the period.
The production numbers were similarly strong. Second-quarter production averaged 165 barrels of oil equivalent per day. The company drilled 12 gross operated wells - 8 in the Eagle Ford and 4 in the Uinta - and brought 11 gross operated wells online, with 6 in the Eagle Ford and 5 in the Uinta during the quarter. Management indicated during the Q2 earnings call that all new wells are delivering strong initial results and are on course to exceed the company’s return target of twice the capital invested. Notably, CRGY incurred capital expenditures (excluding acquisitions) of $120 million in Q2, which was below forecast, with considerable savings to date.
Crescent boasts a robust balance sheet and maintains a low leverage profile. As of June 30, the company reported a Net LTM Leverage ratio of 1.3x, aligning with its targeted leverage, and had liquidity totaling $2.1 billion.
Encouraged by the strong Q2 performance, management raised its standalone production guidance for the second time this year and improved its capital spending outlook. For the rest of 2024, the company anticipates an average total production of 160,000 to 162,500 barrels of oil equivalents per day. Including five months of the SilverBow Acquisition, the average total production is expected to range between 232,000 and 241,000 barrels of oil equivalents per day. The company also revised its full-year capital guidance to between $550 million and $600 million.
Analysts tracking the company forecast a 48.5% year-over-year decline in its earnings to $1.50 per share for fiscal 2024. At the same time, Wall Street expects CRGY’s revenue to rise by 27.34% year-over-year, reaching $3.03 billion in fiscal 2024.
CRGY Stock Valuation and Dividend Yield
On Sept. 3, Crescent Energy paid its shareholders a quarterly dividend of $0.12 per share, in line with the previous. Its annualized dividend of $0.48 per share translates to a dividend yield of 4.37%, aligning with the sector median. However, CRGY maintains a moderate payout ratio of 17.78%, suggesting strong potential for future dividend increases.
Notably, Crescent recently enhanced and streamlined its longstanding return of capital strategy to incorporate a fixed dividend and a $150 million share repurchase program authorized by the Board, effective through March 2026.
From a valuation standpoint, Crescent Energy stock is highly appealing. Priced at 6.61 times forward earnings, the stock trades at a considerable discount compared to the energy sector median of 11.61x and its own five-year average of 7.39x. It also seems undervalued on a forward EV/EBITDA basis. Crescent Energy is trading at 3.09x, significantly below the sector median of 5.80x. In addition, its forward price/sales ratio is just 0.59x - again, well below the sector median of 1.39x.
Options Market Sentiment on Crescent Energy Stock
Looking at the option chain for October 18, 2024, the $10.00 CALL option has a bid/ask spread of $1.20/$1.40, and the $10.00 PUT option shows a spread of $0.05/$0.15. Remember, this options strike is nearest to the current stock price. We can calculate the expected price movement by using the midpoint prices of these options:
0.10 (10.00 put) + 1.30 (10.00 call) = 1.40/11.10 = 12.6%
Based on current prices and using the long straddle approach, the options market suggests that CRGY stock could see a fluctuation of about 13% by the October options expiration from the $10.00 strike price. That would place the stock in a trading range of about $9.66 to $12.54.
However, what’s particularly notable is that the number of open puts at the $10.00 strike price outnumber call options by approximately 1.6 to 1, with 578 open puts compared to 362 open calls. This suggests a bearish sentiment in the options market and indicates a greater probability of the stock declining in value.
What Do Analysts Expect For CRGY Stock?
Crescent Energy stock has a consensus “Strong Buy” rating on Wall Street. Out of the nine analysts offering recommendations for the stock, seven suggest a “Strong Buy,” while the other two assign a “Hold” rating. The mean target price for CRGY stock is $17.00, indicating an upside potential of about 53% from current levels.
The Bottom Line on CRGY Stock
Considering all factors, I believe CRGY stock is a solid “Moderate Buy” candidate. It would be prudent to align with insiders and start building a position in CRGY, given its strong quarterly performance, ongoing acquisitions, attractive dividend yield, and favorable valuation. Even if a near-term pullback occurs, as suggested by the bets in the options market, it would present an excellent opportunity to acquire a solid stock at a more attractive price.
On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
