Laredo Petroleum (LPI) Update - Nov 8

[dan_s]

LPI closed at $73.67 on Friday, November 5. The share price is up 274% YTD.
First Call's price target is $91.22.

LPI is a HIGH BETA stock (it has big share price swings) because it has a low number of shares outstanding (16.1 million at 9-30-2021) for a company its size.
It also spent a lot of time in the Wall Street Penalty Box in 2H 2018 thru 2019 after admitting that their horizontal development wells were being drilled too close together, causing offset wells to decline rapidly. They have corrected the problem and their well results are now very good.
Timing was bad because just when they got out of the Penalty Box the pandemic started.

I have updated my forecast/valuation model for Q3 results and fresh guidance.
My valuation increases by $2 to $102. If Q4 results and their 2022 match my model assumptions, the price target will go A LOT HIGHER.
Why?
> My valuation is just 3X annualized 2021 and 2022 operating cash flow per share ($27.54 in 2021 and $40.46 in 2022). My 2022 CFPS forecast is below TipRanks estimate of $42.49.
> If they continue to generate free cash flow from operations, a valuation multiple of 5X will be reasonable.
> Most of LPI's Bad Hedges expire at year-end, so their realized commodity prices should be much higher in 2022. None of their production is hedged beyond 2023 and they should only be using collars with high ceilings to hedge future production.
> LPI closed several "transformative" transactions in Q3 and early Q4 that improve their production to approximately 48% crude oil, 28% natural gas and 24% NGLs.
> Production declined on a BOE basis from Q2 to Q3 (85,924 to 76,703 Boepd) but revenues increased from $174.7 million to $218.6 million net of the cash settlements on the hedges. I expect revenues to increase to $281.2 million in Q4 2021 and close to $1.3 Billion in 2022.

My forecast/valuation model will be posted to the EPG website home page late this morning.

AGAIN: This is a High Beta stock and Day Traders are working it. Buy the dips.

[willvanam]

Thanks Dan. Back in today