Sweet 16 Update - May 30

[dan_s]

Despite another nice increase in the price of oil last week (up $1.93/bbl) with the front month NYMEX contract for WTI closing at $35.49/bbl on Friday the Sweet 16 moved 3.9% lower during the week ending May 29. All of the week's oil price gain came on Friday afternoon after most stock traders were done for the day.
> Since it was the last day of trading for May a lot of hedge funds closed out their WTI short positions on Friday afternoon.
> There was some tough talk between Trump and China, but they aren't ready to rip up the Phase One trade agreement. Trump did say there will be tariffs on goods coming from Hong Kong.
> Trade with China is a minor issue compared to the COVID-19 pandemic. As long as the new cases of those infected keeps falling, the price of oil will go up.
> Oil is a hedge against inflation and $Trillions of freshly printed "helicopter money" is sure to cause inflation at some point.

WTI is already above the oil price used in my Q2 and Q3 forecasts for the Sweet 16 stock valuations. I think WTI will be firmly over $40/bbl in the 4th quarter. Three weeks ago that seemed like a wild dream. This is why oil price cycles draw lots of attention.

The Sweet 16 is up 41.96% since April 10 and the S&P 500 Index is also up 9.12% since Good Friday. I marked that day as the peak of the Coronavirus Gloom & Doom talk.

Comstock Resources (CRK) and Earthstone Energy (ESTE) were the only two stocks up for the week. CRK pulled back sharply when the company announced a plan to sell more common stock and use the proceeds to retire the preferred stock. The selloff was way overdone because getting the preferred stock out of the way is a good thing for the common stockholders. CRK is a "gasser" and natural gas prices will go a lot higher when Global Warming returns in June. I long for the Good Old Days of Global Warming Gloom & Doom. CRK should be a double for us if HH gas goes to $2.50/mcf and on May 29th the December 2020 NYMEX contract for HH gas closed at $2.80.

I just finished updating the profile for Parsley Energy (PE). If oil prices continue rebounding, PE has a lot more upside than my $15.00 valuation.

All 16 forecast/valuation models are up-to-date and they have been double checked by our brilliant MBAs. The updated Sweet 16 spreadsheet will be up on the EPG website this afternoon. It shows my stock valuations as of today compared to First Call's price target for each company. First Call's price targets are the consensus of all forecasts/valuation submitted to Reuters. Keep in mind that they are always more up-to-date for the large-caps because the Wall Street Gang focuses more attention on companies like EOG & PXD than they do on CPE, ESTE, MTDR and TALO which all have market-caps under a $Billion. This is why on each forecast model I show a few recent analysts price targets.

All 16 companies are generating solid cash flow from operations at today's oil & gas prices. None of them appear to have a liquidity issue.

[dan_s]

One of the energy sector analysts at Stifel is an EPG member and he sends me all of their reports on the upstream and midstream sectors.

Stifel's updated (May 27) price targets for the Sweet 16 that they cover:

CLR $22.00
CXO $74.00
EOG $66.00
FANG $95.00
PE $15.00
PXD $130.00
XEC $47.00

CPE $1.10
MTDR $8.00 < THIS IS THEIR ONLY "HOLD" all of the others are rated "BUY". < My take is that MTDR hit their price target and they haven't had time to update it yet. My valuation is $10.00.
PDCE $22.00