Talos Energy Inc. (TALO): what the price assumes

In the published model solve dated 2026-Q2, anchored at $14.15, Talos Energy Inc. (TALO) is priced for today's economics sustained for ~6.2 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-11.

Generated: 2026-08-10 · Exported: 2026-08-12 · Source: https://boothcheck.com/report/TALO

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 9: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 12% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~1.6 years.

Reconcile: at the x-ray's 9.3% required return this reads ~11.7%/yr; the models below use their own rates.

How unusual the bet is: elevated

Valuation X-Ray

The price is supported by earnings-power value, while relative-multiple lands below the price. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Earnings Families that call it expensive: Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 6.9%); the inversion above states its own rate.

Per-Model Detail (n=6)

Economic-Unit Decomposition (Sum Of The Parts)

Only one reportable economic unit is present in the current topology source. Consolidated operating lenses remain available, but there is no multi-unit decomposition.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Leverage and coverage are computed on normalized mid-cycle operating income (mid-cycle margin 11.0%); the trailing year was depressed.

Bullet Takeaways

• Talos pairs deepwater Gulf infrastructure with a cash engine the income statement hides: $841.6 million of trailing free cash flow against a $2.27 billion market value, while reported operating income sits negative on impairments the 10-K ties directly to lower SEC benchmark pricing [FY2025 10-K, accession 0001193125-26-067807].

• The biggest risk is a levered cyclical structure: $1.33 billion of gross debt, interest coverage of roughly 1.2 times on through-cycle operating income, offshore decommissioning obligations, and a share count that grew about 19% a year through stock-funded acquisitions.

• Watch Monument first production, expected late 2026 at 20 to 30 thousand barrels of oil equivalent per day gross, plus Zama commercialization milestones after the March 2026 Grupo Carso stake sale and the pace of the enlarged buyback.

Bull Case

Talos's structural advantage is location: it operates producing infrastructure in the deepwater Gulf, and in offshore oil the infrastructure is the moat. A new entrant cannot replicate a hub-and-spoke network of platforms, pipelines, and processing capacity without a decade and billions of dollars; an incumbent can drill a discovery like Monument and tie it back to what it already owns. The 10-K describes the derivative program that stabilizes the cash this network throws off, noting the company enters contracts to stabilize cash flows and reduce the risk and financial impact of downward price moves [FY2025 10-K, accession 0001193125-26-067807]. The result shows up where it cannot be faked: $841.6 million of trailing free cash flow against a $2.27 billion market capitalization, a cash yield in the mid-thirties.

The operational quarter behind the stock was strong. First-quarter 2026 production came in around 89,000 barrels of oil equivalent per day, above guidance, with $293.2 million of adjusted EBITDA and $113.2 million of adjusted free cash flow, and management reiterated full-year production and capex guidance while boosting the buyback. That buyback matters more here than at most companies: the share count grew about 19% a year over the past four years as Talos paid for acquisitions partly in stock, including 24.3 million shares alongside $1,247.4 million of cash for QuarterNorth. Reversing the dilution machine into a repurchase machine, funded by internal cash rather than leverage, is the clearest possible signal of where management thinks the value sits.

The growth legs are visible and dated. Monument drilling operations have commenced with first production expected by late 2026 at 20 to 30 thousand barrels of oil equivalent per day gross, and the Zama project in Mexico advanced when Talos sold a 30.1% stake in its Mexican subsidiary to a Grupo Carso affiliate for $83 million, with $50 million received at closing and the balance tied to Zama reaching commercial production. Concede that this is a cyclical business whose reported income statement currently shows an impairment-driven loss. The bull case is that the cash flow statement, not the income statement, is telling the truth about the fleet, and at a mid-thirties percent cash yield the market is paying for the trough and getting the growth for free.

Bear Case

The capital structure is built for a commodity price that cooperates. Gross debt stands at $1.33 billion against $386 million of liquid assets, and on the company's own through-the-cycle operating income, interest coverage runs a thin 1.2 times. That is the fragility: an offshore producer's costs are largely fixed while its revenue floats on crude, so a sustained price drop flows almost dollar-for-dollar into the coverage math. The 10-K quantifies the sensitivity in its own terms, disclosing that if the SEC benchmark price used for reserves was 10% lower, while all other factors remained constant, our oil and natural gas properties would have been impaired by a further amount [FY2025 10-K, accession 0001193125-26-067807]. The trailing year already shows what that mechanism does: reported operating income is deeply negative after impairments, even while cash flow held up.

Offshore also carries a liability onshore producers largely escape. The filing describes the company's obligations associated with the retirement of its oil and natural gas wells and related infrastructure, the requirement to plug wells and decommission platforms when fields deplete [FY2025 10-K, accession 0001193125-26-067807]. These asset-retirement obligations are real, senior in practice to shareholders, and they grow more expensive whenever regulators tighten financial-assurance requirements for decommissioning, a risk the 10-K lists alongside pipeline capacity and infrastructure availability. A Gulf hurricane season, an equipment failure, or a facility malfunction, all named in the company's own forecasting caveats, can idle production for a quarter while the interest clock keeps running.

The equity history counsels caution about the share count. Talos grew through stock-and-cash acquisitions, including QuarterNorth at $1,247.4 million of cash plus 24.3 million shares, and the share count compounded about 19% a year over four years; the new buyback is young against that record. Meanwhile the price already leans on continuation: worked backward, today's $13.49 implies operating growth held near the fastest internally fundable pace for roughly five years, and only about a third of comparable fast-growers have sustained that. The near-term pace is within what Talos has recently delivered; the stretch is duration. If crude weakens before Monument and Zama convert to cash, the market will be holding a levered, impairment-prone, hurricane-exposed producer priced for five good years in a row.

Valuation

Talos is a company where the methods argue because the income statement and the cash flow statement disagree about what happened last year. At $13.49 (July 10, 2026), the price sits at barely more than a quarter of what a straight capitalization of trailing free cash flow would support: the earnings-power lens reads the stock as very cheap, because $841.6 million of trailing free cash flow is an enormous number against a $2.27 billion market value. The trailing peer-multiple lens says the opposite, reading the price at more than double what depressed trailing EBITDA defends, and the book-value reads sit modestly below the price at a $11.13 book value per share. When the cash-flow family and the multiple family point in opposite directions this hard, the question is which trailing year was the anomaly, and here the reported loss carries large non-cash impairments while the cash kept arriving.

Because the trailing quarter is cyclically depressed, the price-implied read uses the company's own through-cycle margins, about 11% on current revenue, rather than the trough. On that basis the market is paying roughly 16 times mid-cycle operating income, which unwinds to operating growth held near the self-funding ceiling for about five years. Only about a third of comparable fast-growers sustained that pace over a similar stretch, and the company's own recent delivery covers the rate but not yet the duration. The reported segment reality behind those normalized numbers: first-quarter production of roughly 89,000 barrels of oil equivalent per day, above guidance, with full-year guidance reiterated.

Solvency is serviceable but not roomy. Net debt of $947.5 million runs against $386 million of liquid assets and an undrawn $700 million credit facility, interest coverage on through-cycle operating income is about 1.2 times, and the company is not burning cash. The share count grew about 19% a year over the past four years through stock-funded acquisitions, a trajectory the newly enlarged buyback is only beginning to lean against. The decisive question the price is asking: whether Monument's late-2026 first oil and a firming Zama arrive before the next leg of the commodity cycle does.

Catalysts

Monument is the dated catalyst. Drilling operations have commenced with continuous drilling and completion activity planned through 2026, and first production is expected by late 2026 at 20 to 30 thousand barrels of oil equivalent per day gross. For a company producing roughly 89,000 barrels of oil equivalent per day in the first quarter, a successful Monument startup is a material step-change in volumes, and any schedule update in the next two quarterly reports moves the story directly.

Zama's path to sanction is the second thread. In March 2026 Talos closed the sale of a 30.1% interest in Talos Mexico to Zamajal, a Grupo Carso subsidiary, for $83 million, with $50 million received at closing and the remainder payable when the Zama field reaches commercial production. The deferred payment structure means Zama milestones now carry cash consequences as well as reserve bookings, and progress with Pemex on development sequencing is the item to watch in management commentary.

The financial calendar runs alongside. Management reiterated full-year 2026 production and capital guidance with the first-quarter results, reported $293.2 million of adjusted EBITDA and $113.2 million of adjusted free cash flow for the quarter, and raised the buyback authorization. The second-quarter print, on the company's usual early-August cadence, tests whether the above-guidance production run-rate holds through hurricane season, the operational risk the company's own disclosures flag as the recurring wildcard for Gulf producers.

Peer Cohorts (Per Segment, With Filing Citations)

Proved properties (reported)

• KOS (KOSMOS ENERGY LTD.)
• FY2025 10-K: …well. "Prospect(s)" A potential trap that may contain hydrocarbons and is supported by the necessary amount and quality of geologic and geophysical data to indicate a probability of oil and/or natural gas accumulation ready to be drilled. The five required elements (generation, migration, reservoir, seal and trap)…
• FY2025 10-K: …included an ability to sell hydrocarbons at their respective adjusted benchmark prices and certain levels of future capital expenditures. The assumptions, data, methods and precedents were appropriate for the purpose served by these reports, and RSC used all methods and procedures as it considered necessary under the…
• MUR (MURPHY OIL CORPORATION)
• FY2025 10-K: …evaluations, including performance, volumetric, and analog-based studies. Where appropriate, Murphy includes reliable geologic and engineering technology to estimate proved reserves. Reliable geologic and engineering technology is a method or combination of methods that are field-tested and have been demonstrated to…
• FY2025 10-K: …condition), or market. Materials and supplies inventories are valued at the lower of average cost or estimated market value and generally consist of tubulars and other drilling equipment. See Note E . PROPERTY, PLANT AND EQUIPMENT - The Company uses the successful efforts method to account for exploration and…
• CRGY (Crescent Energy Company)
• FY2025 10-K: …gas properties classified as held for sale, and subsequently determined the transaction price less cost of sell exceeded the carrying value of certain oil and natural gas properties, which resulted in impairment expense of $233.7 million. Properties acquired in business combinations When sufficient market data is not…
• FY2025 10-K: …successful efforts method of accounting. See "Notes to Consolidated Financial Statements- NOTE 2 - Summary of Significant Accounting Policies " in "Part II., Item 8. Financial Statements and Supplementary Data" of this Annual Report for further discussion of the accounting policies applicable to the successful…
• CHRD (Chord Energy Corp)
• FY2025 10-K: …supply and demand factors, including inflation expectations and the availability of materials, labor and services. To calculate fair value, future cash flows are discounted using a discount rate that is based on rates utilized by market participants and is commensurate with the risk and current market conditions…
• FY2025 10-K: …fluid to hold fractures open after a hydraulic fracturing treatment. In addition to naturally occurring sand grains, man-made or specially engineered proppants, such as resin-coated sand or high-strength ceramic materials like sintered bauxite, may also be used. Proppant materials are carefully sorted for size and…
• MGY (Magnolia Oil & Gas Corp)
• FY2025 10-K: …customers totaled $ 116.5 million and $ 123.8 million as of December 31, 2025 and 2024, respectively. Accounts receivable are stated at the historical carrying amount net of write-offs and allowance for doubtful accounts. The Company routinely assesses the collectability of all material trade and other receivables.…
• FY2025 10-K: …capable of production. " Proved developed reserves ." Proved oil and natural gas reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well. " Proved reserves…
• CTRA (COTERRA ENERGY INC.)
• FY2025 10-K: …in estimating the fair value of assets acquired and liabilities assumed in the acquisitions. The most significant assumptions related to the fair value estimates of proved and unproved oil and gas properties, which were recorded at a fair value of $3.8 billion. Since sufficient market data was not available regarding…
• FY2025 10-K: …value of assets acquired and liabilities assumed. The most significant assumptions related to the fair value estimates of proved and unproved oil and gas properties, which were prepared using discounted cash flows. Significant judgments and assumptions by management include, among other things, future production…
• APA (APA Corporation)
• FY2025 10-K: …technology establishes the reasonable certainty for the engineering analysis on which the project or program is based. Economically producible means a resource that generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. Reasonable certainty means a high degree of confidence…
• FY2025 10-K: IARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) • The most significant assumptions relate to the estimated fair values assigned to proved oil and natural gas properties. The fair value of proved oil and natural gas properties as of the acquisition date were estimated using the income approach, where…
• MNR (Mach Natural Resources LP)
• FY2025 10-K: …our estimated reserves. Actual future prices and costs may differ materially from those used in our present value estimates using SEC Pricing. If spot prices or future actual prices are below the prices used in our current reserve estimates, using those prices in estimating proved reserves may result in a decrease in…
• FY2025 10-K: …71 Table of Contents may differ significantly from the definitions used by other companies to compute similar measures. As a result, the PV-10 value as defined may not be comparable to similar measures provided by other companies. Investors should be cautioned that neither PV-10 nor Standardized Measure of proved…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.