Penn Virginia (PVAC) Update - May 29

[dan_s]

PVAC is being added to our Small-Cap Growth Portfolio today. My forecast/valuation model has been posted to the EPG website.
This one is a "Special Situation".

I took a hard look at Penn Virginia Corp (PVAC) yesterday afternoon.  My initial valuation is $23.00/share.
I have tried to make all of my assumptions very conservative.
Stock trading at $9.14 this morning.
Q1 Actual Results were Reported EPS of $10.76 and Adjusted Earning per Share of $1.89 & Operating Cash Flow per Share of $3.72.
Q2 results will be interesting because they have a lot more oil hedged at over $55/bbl than they are going to produce in the quarter. Which means they are going to get a "stunning" cash settlement on their hedges. My guess at a realized oil price (including cash settlements on their hedges) of $65/bbl for Q2 may be too low. They also have more than 100% of the forecast oil production hedge in Q3.

This one is definitely a "special situation". 2020 Operating Cash Flow per Share should be over $11.00 based on my forecast model and may be much higher if their production rebounds in Q4 to what it was in Q1. In April & May the company shut down all drilling & completion work and they have shut-in about 40% of their production. In my opinion, their decision to keep oil in the ground until prices improve is SUPER SMART and it is only possible because their aggressive hedging program locks in strong cash flow.

Penn Virginia is a pure play on the Eagle Ford. They have a strong balance sheet and they have been and will continue paying down their debt with steady free cash flow from operations.
The Company increased production 27.3% year-over-year in 2019 and they were on-track to increase production 5% to 10% in 2020 before "Crazy Coronavirus World" arrived. Assuming we return to "near normal" in 2021, the company is well-positioned for steady self-funded production growth.

[dan_s]

There is a lot more upside for this one from where it is trading today. Log on to the EPG website and check out my forecast/valuation model under the Small-Caps tab.