Is it worth following the rules for purchasing dividend shares of energy companies?

In the investing world, 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 dividend stock in the energy sector that has caught the attention of insiders—and perhaps should catch the attention of investors—is Crescent Energy (CRGY).

Crescent Energy has attracted a wave of insider buying over the past month, indicating strong confidence in the company’s future. The company’s CEO recently bought 110,000 shares, adding to the growing list of insiders who are increasing their positions. It’s worth noting that CRGY also has a Strong Buy rating from analysts, with plenty of upside potential toward its average price target.

In this article, we’ll take a closer look at the fundamentals of Crescent Energy, examine the reasons behind the insider buying, and assess whether it’s the right time to follow the insider information and invest in this dividend energy company.

About Crescent Energy

Crescent Energy Company (CRGY) is a Texas-based energy company specializing in the acquisition, development, and production of crude oil (CLV24), natural gas (NGV24), and natural gas liquids (NGL) reserves. The company’s portfolio includes low-decline, cash-flow focused unconventional and conventional assets in the Eagle Ford and Uinta basins with long-lived reserves and high-yield play locations. It currently has a market capitalization of $1.96 billion.

Crescent Energy shares lost about 13% year-over-year, underperforming the Energy Select Sector SPDR Fund (XLE) ETF, which was up 6.4% over the same period.

Latest news about CRGY stock

On September 16, brokerage firm Mizuho lowered its price target for Crescent Energy from $14 to $13, while maintaining a “Neutral” rating on the stock. Mizuho lowered its commodity price forecast for the second half of 2024 to 2027 and lowered net asset value-based price targets by 7% across the oil and gas exploration group.

On September 5, Wells Fargo raised its price target on Crescent Energy shares from $20 to $21 and maintained its “Overweight” rating. The company emphasized that the company continues to execute on its growth strategy through acquisitions and strengthens its leading position in the Eagle Ford region.

Wells Fargo previously resumed coverage of CRGY on Aug. 8 following quarterly results. The firm cited CRGY’s discounted valuation, low-diminishing asset base, diversified growth strategy and emerging-market exposure as key factors in its bullish rating.

Crescent Energy Builds Eagle Ford Position

September 4 Crescent Energy revealed that she had signed a final agreement to purchase assets from a private operator in the Eagle Ford region for $168 million in cash. This acquisition complements the company’s active expansion in the area over the past 18 months, including the recent acquisition of SilverBow Resources.

Crescent said the acquisition of the low-fall oil production, which boasts an attractive inventory, complements its existing operations in the Eagle Ford hub. The purchase is expected to be accretive to operating cash flow, free cash flow and net asset value per share. The company noted that the transaction adds approximately 30 major oil-weighted development locations across 5,300 net acres of royalty.

“This transaction builds on our momentum in the Eagle Ford, where we see significant opportunity for continued growth and attractive returns,” said David Rockecharlie, CEO of Crescent. “We are adding low-fall oil production and high-quality acreage adjacent to our current position with significant opportunity to further enhance returns through improved operating efficiencies.”

Crescent Energy Insiders Step Up Bullish Bets on Stock

Over the past month, Crescent Energy has seen an increase in share purchases by various executives and insiders. In the regulatory filingCrescent Energy disclosed that CEO David Rockecharlie acquired 10,000 shares of its Class A common stock on September 5 at a weighted average price of $11.07, for a total of $110,699 for the transaction. Rockecharlie now owns 110,000 shares of the company, representing 0.2552% of the outstanding shares.

Another notable buyer of CRGY shares was director Michael Duginski, who made two transactions in August. Duginski I bought 10,000 ordinary shares at $11.09 on August 23, bringing the total transaction amount to $110,900. His previous purchase was on August 9, when bought 18,263 ordinary shares at $10.5614 in a transaction worth $192,883. Duginski now owns 220,000 shares in the company, or 0.5104% of all shares outstanding.

Several other executives have also bought shares in the company over the past month, though their purchases have been more modest, at around $10,000 each. These purchases reflect a solid commitment to the company’s future prospects.

How did Crescent Energy perform in the second quarter?

Crescent Energy reported financial results for the second quarter Aug. 5. The company’s total revenues increased 32.7% year over year to $653.28 million, beating Wall Street’s expectations of $31.48 million. The increase in total revenues was primarily due to a 27% year over year increase in crude oil revenues, driven by higher sales volumes and higher realized crude oil prices. Of note, the increase in sales volumes was primarily attributable to Western Eagle Ford Acquisitions. GAAP CRGY earnings per share for the quarter were $0.33, beating analysts’ expectations by $0.10.

The company also delivered strong performance across key financial metrics, generating $320 million in adjusted EBITDA, $287 million in cash flow from operations and $147 million in free cash flow during the period.

Production data was similarly strong. Average production in the second quarter was 165 barrels of oil equivalent per day. The company drilled 12 gross producing wells – 8 in the Eagle Ford and 4 in the Uinta – and brought on stream 11 gross producing wells, 6 in the Eagle Ford and 5 in the Uinta, during the quarter. Management indicated on the second-quarter earnings conference call that all new wells were showing strong initial results and were on track to exceed the company’s return on capital employed target of 2x. Notably, CRGY incurred capital expenditures (excluding acquisitions) of $120 million in the second quarter, which was below guidance, with significant savings to date.

Crescent boasts a strong balance sheet and maintains a low leverage profile. As of June 30, the company reported a net LTM leverage ratio of 1.3x, which is in line with its target leverage, and had total liquidity of $2.1 billion.

Encouraged by strong second-quarter results, management raised its unit production guidance for the second time this year and improved its capital expenditure outlook. For the remainder of 2024, the company expects average total production to be between 160,000 and 162,500 barrels of oil equivalent per day. Including the five-month SilverBow acquisition, average total production is expected to be between 232,000 and 241,000 barrels of oil equivalent per day. The company also revised its full-year capital guidance to between $550 and $600 million.

Analysts are monitoring the company’s forecasts 48.5% decrease year-on-year to $1.50 per share in fiscal 2024. At the same time, Wall Street expects CRGY’s revenue to increase by 27.34% year over year to reach $3.03 billion in fiscal 2024.

CRGY Stock Valuation and Dividend Yield

On September 3, Crescent Energy paid its shareholders a quarterly dividend of $0.12 per share, in line with the previous one. The annual dividend of $0.48 per share translates to a dividend yield of 4.37%, which is in line with the sector median. However, CRGY maintains a moderate payout ratio of 17.78%, suggesting a strong potential for future dividend increases.

It is worth noting that Crescent recently enhanced and streamlined its long-term capital return strategy to include a flat dividend and a $150 million share repurchase program approved by its Board of Directors, effective through March 2026.

From a valuation perspective, Crescent Energy stock is very attractive. Priced at 6.61x forward earnings, the stock is trading at a significant discount to the energy sector median of 11.61x and its own five-year average of 7.39x. It also appears undervalued based on its projected EV/EBITDA. Crescent Energy is trading at 3.09x, well below the sector median of 5.80x. Furthermore, its projected price-to-sales ratio is just 0.59x — again, well below the sector median of 1.39x.

Crescent Energy Stock Options Market Sentiment

Looking at the options chain as of October 18, 2024The $10.00 CALL option has a bid/ask spread of $1.20/$1.40, and the $10.00 PUT option has a spread of $0.05/$0.15. Remember that the strike price of this option is closest to the current stock price. We can calculate the expected price movement 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 a long straddle approach, the options market suggests CRGY stock could see a 13% move from the $10.00 strike price to expiration in October. That would put the stock in a trading range of around $9.66 to $12.54.

However, what is particularly noteworthy is that the number of open puts at the $10.00 strike price outnumbered calls by a ratio of about 1.6 to 1, with 578 open puts compared to 362 open calls. This suggests bearish sentiment in the options market and points to a higher probability of a decline in the stock.

What do analysts expect from CRGY stock?

Crescent Energy stock has a consensus rating of “Strong Buy” on Wall Street. Of the nine analysts offering recommendations for the stock, seven suggest a “Strong Buy,” while the remaining two assign a “Hold” rating. The average price target for CRGY stock is $17.00, indicating potential for an upside of about 53% from current levels.

CRGY Action Summary

All things considered, I believe CRGY stock is a solid candidate for a “Moderate Buy.” It would be wise to partner with insiders and start building a position in CRGY given its strong quarterly results, ongoing acquisitions, attractive dividend yield, and favorable valuation. Even if there is a near-term pullback, as options bets suggest, it would be a great opportunity to pick up a solid stock at a more attractive price.

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On the date of publication, Oleksandr Pylypenko did not have (directly or indirectly) a position in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.