Coterra Energy shares dropped 3% on Tuesday despite the oil and natural gas producer delivering better-than-expected fourth-quarter earnings late Monday. Capital efficiency was a highlight with output levels above management's outlook range and capital expenditures near the low end of guidance. Revenue in the three months ended Dec. 31 declined 13% versus the year-ago period at $1.395 billion, slightly missing the $1.4 billion consensus forecast, according to analyst estimates compiled by LSEG. Adjusted diluted earnings per share fell 6% versus the year-ago period to 49 cents and beat expectations of 43 cents, LSEG data showed. Why we own it Formed by the merger of Cabot Oil & Gas and Cimarex, Coterra Energy is an exploration-and-production company with a high-quality, diversified asset portfolio. The company practices capital discipline and is a low-cost operator. Our lone energy stock, Coterra also acts as a hedge on inflation and geopolitical risk. Competitors: EQT Corp ., Devon Energy Last buy: Oct. 1, 2024 Initiation: April 14, 2022 Bottom Line Coterra Energy ended the year on a good note thanks to strong production on a lower-than-expected capital expenditure base. This is what we mean when we say Coterra is a disciplined, capital-efficient operator. It is able to get more out of the ground while keeping spending in check. There was some nitpicking around the company's first-quarter outlook, which featured a lower-than-consensus production outlook and higher capital expenditures. However, the 2025 outlook was pretty much in line with what management provided in November when the company announced the acquisition of two assets in the Permian basin, a resource-rich area in western Texas and southeastern New Mexico. But there were two noteworthy updates to the full-year projections: (1) Coterra is lowering its planned Permian spending this year by $70 million, driven by cost and service deflation and acquisition synergies. (2) It's taking part of those cost savings and raising its investment in the natural gas-rich Marcellus Shale by $50 million to increase drilling activity that will impact next winter's volumes. The Marcellus encompasses parts of New York, Pennsylvania, Ohio, West Virginia, Maryland, Tennessee, Virginia and Kentucky. If macro conditions present an opportunity, management said it could increase Marcellus capital by an incremental $50 million in the second half of 2025 to deliver higher volumes by early 2026. This flexibility between basins and commodities is what has always attracted us to Coterra. If oil has a stronger outlook versus natural gas, Coterra can shift some of its investment activity toward more oily regions, like the Permian. If nat gas has the better fundamental outlook, it can flex some of that spending towards Marcellus to capitalize on the opportunity. "Although our 2025 plan includes significant oil investments, we also have flexibility if oil markets were to wobble. Rest assured, if we need to adjust our capital plan during the year, we will do so thoughtfully and explain it thoroughly. Flexibility is the coin of the realm," CEO Tom Jorden said on Tuesday's post-earnings conference call, which always held the morning after the results are released. Powering energy-intensive data centers that run artificial intelligence workloads is also an opportunity for Coterra as nat gas is the most immediate answer given many of the recent nuclear power deals with tech companies will take time to have an impact. Jorden, who will be on "Mad Money" on Tuesday evening said on the earnings call that the company is in discussions with "everything from good old fashioned combined cycle plants to, behind the meter type power solutions for data centers." He added, "I think everyone's still trying to figure out exactly what the end state looks like. But we have so many molecules and so many places that, we're really well positioned to take advantage of some of this. And I'm hopeful we'll have some good announcements coming before too long on this." As for cash returns, Coterra paid out $218 million to shareholders in the quarter — split between $168 million in dividends and $50 million coming from share repurchases. The buyback was a step down from the $111 million spent in the third quarter but that was due to the company funding its Permian acquisitions and prioritizing debt repayment. Slower buybacks may continue this year despite $1.1 billion remaining on a $2 billion share repurchase program. As for the dividend, the company is hiking its quarterly payment by 5% to 22 cents per share, which brings the annual dividend yield on the stock up to around 3.2% based on a $27.25 stock price. That's roughly where shares were trading Tuesday. We booked profits in Coterra in late January when the stock neared $30 per share. With the stock down about 5% since the trim, we are warming up to the idea of buying those shares back. However, we're looking for a little bit more of a pullback to pull the trigger. So, while reiterating our 2 rating, we're nudging up our price target to $30 per share from $28. CTRA 1Y mountain Coterra Energy 1 year 2025 guidance Following its announced Permian Basin acquisitions, Coterra provided pro forma 2025 capital expenditure, total production, and oil production outlook. The company tweaked the total production and oil production ranges but left them unchanged at the midpoint. The capital expenditure budget was also unchanged. Estimated discretionary cash flow of $5 billion based on recent strip prices. That's higher than the consensus estimate of $4.64 billion. Estimated capital expenditure budget of $2.1 billion to $2.4 billion. The $2.25 billion midpoint is in line with the consensus of $2.23 billion. Free cash flow is estimated to be $2.7 billion based on recent strip prices. That's higher than the consensus estimate of $2.375 billion. The company expects 2025 total equivalent production of 710 to 770 Mboe/d. The 740 midpoint of the range is slightly below the consensus forecast of 747 Mboe/d, which stands for total oil equivalent of a thousand barrels per day. Oil production is expected to be in the range of 152 to 168 Mbo/d and inline with consensus of estimate of 160 Mbo/d, which stands for a thousand of barrels of oil per day. Natural gas production is now expected to be in the range of 2,675 to 2,875 MMcf/d. The 2,775 midpoint is below the consensus of 2,808 MMcf/d, which stands for a million standard cubic feet per day. (Jim Cramer's Charitable Trust is long CTRA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. 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