Why RiverPark Bullish On EOG Resources (NYSE: EOG)

The RiverPark Large Growth Fund is bullish on EOG Resources Inc (NYSE: EOG) and the fund discussed its investment thesis on EOG in its Q2’18 investor letter. RiverPark believes that the stock will continue to benefit from “stable-to-rising oil price” in the coming days, noting that “EOG will trade on the long-term value embedded in its reserves, which we believe to be materially above its current market price.” Let’s take a look at the fund’s comments about EOG Resources.

EOG Resources: In a nice rebound for one of our energy holdings, EOG shares advanced 18% for the quarter due to the market’s increasingly favorable view of the company’s balanced growth and free cash flow business model, as well as rising oil prices (oil was up 14% in the quarter and is up 23% for the year). Energy related equities had not participated in the overall market rally over the last 15 months as the Energy Select Sector Index had declined 7% since the end of 2016 (through 1Q18) compared with a 21% return for the S&P 500 and an 18% increase in the price of a barrel of oil. The recent increases in oil prices (to $74 per barrel from a low of $26 in early 2016), as well as the focus of several E&P companies on reducing capital expenditures and financial leverage has, we believe, begun to renew investor interest in energy stocks.

EOG’s advanced technology and proprietary techniques have led to breakthrough well performance and among the lowest costs of production. The company is the growth and return on capital leader in the industry, has one of the most unlevered balance sheets in the industry, and we believe has positioned itself for significant outperformance in a stable to rising commodity environment. EOG has consistently exceeded its U.S. production targets while cutting costs and continuing to add low cost premium reserves, all funded by internally generated cash flow. In 2017, the company grew its total crude oil production 19%, reduced debt, maintained its dividend and increased its return on capital. Guidance for 2018 is similar with total crude oil production growth of 16%-20%, over $1.5 billion of FCF, a double-digit return on capital and plans for at least 19% compound annual growth in its dividend over the next 5 years. We remain optimistic that, with stable-to-rising oil prices, EOG will trade on the long-term value embedded in its reserves, which we believe to be materially above its current market price.

EOG

EOG Resources Inc (NYSE: EOG) is a $68.08-billion market cap independent (non-integrated) crude oil and natural gas company with proved reserves in the U.S., Trinidad, the U.K., and China.

EOG shares are up 7.54% since the beginning of this year. Over the past three months, the share price has jumped just 0.79%, while the stock has moved up 19.37% over the past 12 months. EOG has a consensus average target price of $139.81 and a consensus average recommendation of ‘OVERWEIGHT’, according to analysts polled by FactSet. On Monday, the stock was closed at $117.54.

Meanwhile, EOG Resources is a popular stock among hedge funds covered by Insider Monkey. As of the end of the second quarter of 2018, there were 30 funds in our database with positions in EOG.

Disclosure: none