Continental Resources (CLR) Update - June 7

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dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Continental Resources (CLR) Update - June 7

Post by dan_s »

On Monday, June 3rd CLR announced a significant Stock Repurchase Program:
"The Company's Board of Directors also authorized an initial share-repurchase program of up to $1 billion, beginning in second quarter 2019 and continuing through 2020, at times and levels deemed appropriate by Company management. The Company expects a substantial portion of this initial amount will be executed by year-end 2019. Should market conditions warrant, the Company could prioritize further share repurchases in lieu of production growth."

The company also announced that they will start paying dividends in November, will continue to significantly pay down their debt and a positive revision to their 5 Year Vision to generate over $5 Billion in Free Cash Flow from operations if WTI averages $60/bbl.

Two analysts updated their forecasts/valuations of CLR on June 4:
> Leo Mariani at KeyBanc rates CLR a BUY with a price target of $52.00
> Derrick Whitfield at Stifel Nicolaus rates CLR a BUY with a price target of $71.00

First Call's price target for CLR is $58.95. It is the average price target of 33 Wall Street Analysts, some of which are more than six months old. Only the two above are dated after the June 3rd press release.

I have updated my forecast/valuation model for CLR on the assumption that 40% of the Stock Repurchase Program is completed this year and 60% is completed in 2020.
My valuation increases to $85/share.
In my opinion, an upstream company that is committed to increase production by 12.5% per year for at least the next five years, is generating enough free cash flow to pay down debt and fund a $Billion stock repurchase program should be trading for AT LEAST 8X operating cash flow per share.

My updated model has been posted to the EPG website. Note that the First Call cash flow per share estimates in the RED BOX do not include the impact of what was announced on June 3rd.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Continental Resources (CLR) Update - June 7

Post by dan_s »

Note that, like all of the forecast/valuation models on the EPG website, CLR's forecast is an Excel spreadsheet that is "macro driven". So, you can change the oil and gas realized price assumptions at the bottom to see how it impacts the model and stock valuation. I just changed the oil price to $50/bbl for all future periods and it lowered my valuation to $74.45/share.

Even at $50/bbl oil, CLR should still be able to fund all of their growth with cash flow from operations and complete the stock repurchase program.
Dan Steffens
Energy Prospectus Group
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