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Despite numerous challenges, XTO Energy, Inc. (XTO) remains well-positioned to provide another record performance in 2009 on the back of its impressive portfolio of producing assets and industry-leading cost metrics.
The company intends to generate free cash flow of roughly $2 billion for the year, of which at least $1.25 billion will go towards debt reduction. Also, having already locked in nearly 80% of 2009 production at very attractive prices, the company has smoothed out the commodity-price risk. As such, we are maintaining our Buy recommendation on XTO shares. While shares of E&P companies have bounced back some in recent days (our coverage universe is up 16.5% in the last four weeks vs. a gain of 5.2% for the S&P 500), they still remain significantly below the late summer 2008 levels.
Our unchanged $62 price objective reflects 2009 P/CF and EV/EBITDA multiples of 6.2x and 6.0x, respectively, well within historical trading ranges.
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