California Resources Corp (NYSE:CRC): A Deep Value Stock with Strong Profitability

For investors looking for opportunities in undervalued securities, a methodical approach to fundamental analysis can highlight interesting candidates. The "Decent Value" screening method focuses on finding companies with good valuation numbers while keeping acceptable scores in profitability, financial condition, and growth. This method fits with value investing ideas by focusing on stocks that might be trading for less than their inherent worth while showing basic strength in several areas. By needing a valuation score above 7 along with acceptable scores in other important areas, this plan tries to find companies that are not just low-priced but fundamentally healthy.

California Resources Corp (NYSE:CRC) offers an interesting example within this structure. The independent energy and carbon management company, based in Long Beach, California, has placed itself where traditional energy production and the new carbon management sector meet. With operations in oil and gas basins across California and an increasing focus on carbon capture through its Carbon TerraVault business, CRC works in changing energy markets that may create pricing gaps for watchful investors.

Valuation Assessment

The company's valuation numbers indicate possible undervaluation compared to both industry competitors and wider market indexes. CRC's valuation score of 7/10 shows several notable metrics:

• Price-to-Earnings ratio of 11.54, much lower than the S&P 500 average of 27.86
• Enterprise Value to EBITDA ratio more affordable than 89% of industry competitors
• Price-to-Free Cash Flow ratio showing a more affordable valuation than 81% of sector peers
• Forward P/E ratio of 16.74, representing a discount to the S&P 500 average of 23.32

These valuation traits are especially important for value investors looking for a safety buffer. The lower multiples compared to both the wider market and industry averages suggest the market might be undervaluing CRC's earnings ability and cash flow generation.

Profitability Strength

CRC shows solid profitability with a score of 8/10, doing better than many industry competitors on key metrics:

• Return on Assets of 9.91% is better than 87% of industry peers
• Return on Equity of 19.52% is higher than 85% of sector competitors
• Return on Invested Capital of 14.94% beats 92% of industry companies
• Gross Margin of 69.78% puts CRC with the top performers in its sector
• Steady profitability over the last five years with positive earnings and operating cash flow

This profitability picture provides important fundamental support for value investors. Good and steady returns on capital point to efficient operations and lasting competitive benefits, lowering the risk of value traps where seemingly low prices hide weakening business fundamentals.

Financial Health Considerations

With a health score of 5/10, CRC displays a varied but generally acceptable financial standing:

• Debt-to-Equity ratio of 0.26 shows a balanced capital structure
• Debt-to-Free Cash Flow ratio of 2.02 indicates good debt repayment ability
• Altman-Z score of 2.35, while not outstanding, is better than 73% of industry peers
• Current and quick ratios under 1.0 present some liquidity questions, though these should be viewed in light of the company's good solvency and profitability

For value investors, sufficient financial health is necessary to make sure the company can handle economic slowdowns and continue operating while waiting for the market to acknowledge its inherent value. CRC's acceptable solvency metrics help balance liquidity concerns, especially considering the capital-heavy nature of energy operations.

Growth Trajectory

CRC's growth score of 6/10 shows both good past performance and more limited future outlooks:

• Earnings Per Share growth of 38.79% over the past year
• Five-year EPS growth rate of 21.50% per year
• Revenue growth of 91.27% in the most recent year
• Expected future EPS growth of 2.15% and revenue growth of 6.09% per year

While future growth outlooks seem modest, the company's shift toward carbon management services could represent a growth path that is not fully recognized. For value investors, sensible growth outlooks mixed with current undervaluation can form appealing risk-reward situations, particularly when the market might be missing new business areas.

Investment Considerations

The mix of CRC's valuation, profitability, and strategic placement indicates possible alignment with value investing ideas. The company's discounted valuation multiples, good profitability numbers, and new carbon management business create a profile that may attract investors looking for undervalued opportunities with fundamental health. However, investors should think about industry-specific factors including commodity price swings, regulatory changes in California's energy sector, and the performance risk linked to expanding carbon management operations.

The fundamental analysis of California Resources Corp shows several traits that value investors usually look for: apparent undervaluation relative to earnings and cash flow, good profitability numbers, acceptable financial health, and reasonable growth prospects. The detailed fundamental report offers more information for investors doing deeper research.

For investors wanting to look into similar opportunities, more screening results are available through our Decent Value Stocks screening tool, which finds companies meeting similar valuation and fundamental standards.

Disclaimer: This analysis is for informational purposes only and does not constitute investment advice, recommendation, or endorsement of any security. Investors should conduct their own research and consult with financial advisors before making investment decisions. Past performance does not guarantee future results, and all investments carry risk including potential loss of principal.