6. Kosmos Energy Ltd. (NYSE:KOS)
Share Price: $4.37
Analyst Upside Potential: 83.07%
Forward P/E Ratio: 5.73
Earnings Growth This Year: 9.70%
Number of Hedge Fund Holders: 25
Year-to-Date Decline: 35.07%
Kosmos Energy Ltd. (NYSE:KOS) is an oil and gas company that focuses on exploring and producing energy from deepwater locations. It has operations in key locations such as Ghana, Equatorial Guinea, the U.S. Gulf of Mexico, Mauritania, and Senegal.
The stock has been down 35.07% on a year-to-date basis, making Kosmos Energy Ltd. (NYSE:KOS) one of the worst performing affordable stocks under $40. However, analysts think otherwise, 8 analysts have a strong Buy rating on the stock, with their 12-month median price target of $8 presenting an upside of 83% from current levels.
So what defines this bullish sentiment from the analysts? Kosmos Energy Ltd. (NYSE:KOS) is one of the stocks that is expected to benefit from higher oil and gas prices as soon as the economy bounces back. Moreover, the company’s financial performance has also been strong as demonstrated by 16.34% year-over-year revenue growth during the second quarter of 2024.
Management aims to increase its production by 50% and the recent quarter results already indicate significant progress. The company has been able to increase its production by 7% year-over-year and produces 62,000 barrels of oil daily.
Moreover, the company also aims to substantially improve its free cash flow generation to a range of $100 million to $150 million each quarter. If management pulls it off, Kosmos Energy Ltd. (NYSE:KOS) will be able to reduce its debt and simultaneously expand its operating ventures. It has recently started production at Winterfell, with the company owning 25.04% interest at the site.
Patient Capital Management stated the following regarding Kosmos Energy Ltd. (NYSE:KOS) in its fourth quarter 2023 investor letter:
“Kosmos Energy Ltd. (NYSE:KOS) declined from the high seen at the end of September following energy prices lower. The company was also hit as they marginally increased CAPEX expectations and hinted at the potential for their first gas delivery out of Tortue being delayed to 2Q24 from 1Q. Kosmos is an exploration and production services company with assets in Africa. The company is differentiated in the Exploration & Production space because of its growth profile (+30% YoY in 2024), long reserve life (>20yrs, nearly double the sector average) and focus on liquified natural gas (LNG). While the market is focused on near-term risk of production delays, we believe it is ignoring the long-term value of the underlying assets. As we move into 2024, production should inflect higher, climbing 30% YoY, while CAPEX comes down, declining 20% YoY. Together this leads to attractive growth and free cash flow generating asset providing the company the ability to pay down their debt and to return capital. At these levels, the company will generate more than its current market cap in FCF over the next 5 years at $90 Brent prices. With the combination of gas-heavy reserves and inflecting cash flow generation, we think Kosmos is significantly undervalued and a potential acquisition target.”
