Sweet 16 Update - Sept 26

[dan_s]

Devon Energy (DVN) is being added to the Sweet 16 Growth Portfolio.

Earthstone Energy (ESTE) is being moved back to the Small-Cap Growth Portfolio. ESTE is still one of my Top Picks. It is just a matter of size.

I took a hard look at Callon Petroleum (CPE) this morning. I am lowering my valuation to $19.00, which is close to Stifel's price target of $18.50. The First Call price target is $10.53.
IMO Callon is still being penalized for the all stock merger with Carrizo late in 2019. Q2 results beat forecasts and they are generating free cash flow from operations, most of which is locked in by hedges on 80% of their oil. Production will be down from Q2 to Q3 just because they wisely are pushing some completions out a few months.

All of my other Sweet 16 valuations will be the same as they were in the last newsletter. All of my forecast/valuation models are based on WTI averaging $38 in Q3, $42 in Q4 and $50 in 2021. My gas price assumptions are currently below the NYMEX strip. I do adjust for regional differentials and hedges.

Next week the natural gas price reported in the news will be the NOV20 futures contract. It closed at $2.804 on Friday. By the end of October the front month contract will be DEC20, which closed at $3.269 on Friday. Our three "gassers" (CRK, EQT and RRC) aren't even close to being valued based on $3.00 gas. XEC and OVV will also get a nice revenue boost from higher gas prices.

I am working on the newsletter that should be sent out on Monday.