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On Friday, Citi initiated coverage of shares of Talos Energy (NYSE:) with a Buy rating and a $16.50 price target. The new target reflects the company's confidence in the oil and gas company's balanced growth approach and operational potential.
Citi's coverage release highlights Talos Energy's strategic mix of acquisitions and organic growth, along with its operational advantage. Citi's price target is based on approximately 3.2 times the company's debt-adjusted cash flow (DACF) estimate for 2024 and anticipates a free cash flow (FCF) yield of around 10%.
Citi recognizes the challenges Talos Energy faces, such as its relatively small scale and shorter reserve life compared to some peers. However, the firm believes that the company's consistent strategy is key to managing these concerns.
The recent drop in Talos Energy's share price is attributed to market reactions to the company's withdrawal from the carbon capture and storage (CCS) business and the downscaling of the Zama project. Citi views these reactions as overblown and expects the market to recognize the value of Talos Energy's focus on growth and operational execution in future quarters.
Additionally, Citi anticipates that advances in technology within the industry will improve Talos Energy's operating performance. This vision is based on the belief that technological improvements will continue to emerge that will benefit Talos and the industry as a whole.
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