CIVI

We rate CIVITAS RESOURCES, INC. (CIVI) as a Reduce with a composite score of 46.2/100 at a current price of $27.40. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in value (69th percentile) and quality (53th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (6th percentile) and stability (37th percentile) tempers our overall conviction. We assign a Narrow Moat rating (40/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

CIVITAS RESOURCES, INC. holds a top-quartile position (#0 of 50) within the Mining sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 46.2/100 places it at rank #2606 in our full 7,333-stock universe. At $3.0B in market capitalization, CIVITAS RESOURCES, INC. is a mid-cap player in the Mining space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue contraction of -8% combined with momentum at the 6th percentile paints a cautious picture of the near-term business outlook. The market appears to be pricing in continued challenges, and a catalyst for reversal is not clearly visible from current data.

The margin cascade tells an important story: gross margins of 91% (+48.3pp vs sector) narrow to operating margins of 23% (+11.1pp vs sector) and net margins of 15.2%, yielding a gross-to-net conversion rate of 17%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $27.40, CIVITAS RESOURCES, INC. is trading near fair value based on current fundamentals. Our value factor score of 69/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 4.3x (a 69% discount to the sector median of 13.7x), EV/EBITDA of 0.9x (discounted to peers), P/B of 0.5x, P/S of 0.6x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to CIVITAS RESOURCES, INC.. The stock presents a balanced risk profile: below-average price stability (37th percentile). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: below-average price stability (37th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 37th percentile and quality factor at the 53th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 91% provide a buffer against cost pressures; a 6.15% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate CIVITAS RESOURCES, INC.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 12.0%, and the balance sheet is managed within acceptable parameters (D/E: 77%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; CIVITAS RESOURCES, INC. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 6.15% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, CIVITAS RESOURCES, INC. receives a Reduce rating with a composite score of 46.2/100 (rank #2606 of 7,333). Our quantitative framework assigns a Narrow Moat (40/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 41/100.

Our analysis does not support a constructive view on CIVITAS RESOURCES, INC. at this time. The combination of the current quantitative profile, medium uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.