Sweet 16 Update - Dec 1
Posted: Fri Nov 30, 2018 6:57 pm
I am doing this on Friday evening because the "Boss Lady" (Miss Susan, our Cruise Director) tells me that I have several "Honey Do" projects that must be done tomorrow. Plus, we are leaving on vacation on Sunday.
The Sweet 16 was down another 1% during the week ending November 30, but I do see some encouraging signs.
> The larger companies are drawing some bids from the bargain hunters. XEC, CXO, CLR, EOG, FANG, GPOR, MTDR and PXD were all up. Six of them are in the "Elite Eight".
> Had it not been for Friday's selloff, the portfolio would have had a good week.
There is literally nothing that I can think of that justifies the three gassers (AR, GPOR and RRC) being down. I took a hard look at RRC early in the week and I raised by valuation $1 to $33/share AND I think my valuation is conservative. The outlook for natural gas and NGLs is MUCH BETTER than it was a month ago and RRC and AR hold some of the most valuable natural gas assets on this planet. If any of you can think of any reason for these stocks being down, I would be interested in hearing it.
RRC is going to generate approximately $4.30 operating cash flow per share in 2018 and more than $4.50/share in 2019 if natural gas averages $3/mcf. First Call's operating CFPS forecast is $4.74 in 2019. There is no justification that I can think of for RRC to be trading for less than 4X operating CFPS. AR closed on Friday at 2.35 X CFPS for 2018 and GPOR closed at 1.73 X CFPS for 2018. GPOR is the most profitable company in the Sweet 16 with a PE ratio of less than 4. The average PE ratio of the S&P 500 is 22.
Another positive sign is that the First Call price targets for the Sweet 16 have barely moved since the beginning of November. By now, a lot of the analysts' reports that Reuters uses to come up with the First Call price targets have been updated for Q3 results. First Call's price target for Antero Resources (AR) actually went UP this week.
I finished updating the last of the Sweet 16 profiles today. We will be sending out the updated profile on Parsley Energy (PE) on Saturday morning. My valuation of $42.00 compares to First Call's price target of $40.35. PE closed on November 30 at $20.13. They have a lot of their oil hedged and they have firm pipeline takeaway capacity for all of their oil through 2019. Plus, they are getting Gulf Coast prices on a lot of their oil.
Keep in mind that there is some stuff that should ease the pain of low oil prices in Q4:
> Oil prices were high for most of October
> Most of these companies have hedging programs that will help. BTW the companies with lots of their oil hedged will report HUGE mark-to-mark gains on their hedges in Q4.
> Natural gas prices should be much higher for the quarter. They all sell a mix of gas, ngls and oil.
OPEC+ meets on Dec. 6 and a production cut is expected.
The Sweet 16 was down another 1% during the week ending November 30, but I do see some encouraging signs.
> The larger companies are drawing some bids from the bargain hunters. XEC, CXO, CLR, EOG, FANG, GPOR, MTDR and PXD were all up. Six of them are in the "Elite Eight".
> Had it not been for Friday's selloff, the portfolio would have had a good week.
There is literally nothing that I can think of that justifies the three gassers (AR, GPOR and RRC) being down. I took a hard look at RRC early in the week and I raised by valuation $1 to $33/share AND I think my valuation is conservative. The outlook for natural gas and NGLs is MUCH BETTER than it was a month ago and RRC and AR hold some of the most valuable natural gas assets on this planet. If any of you can think of any reason for these stocks being down, I would be interested in hearing it.
RRC is going to generate approximately $4.30 operating cash flow per share in 2018 and more than $4.50/share in 2019 if natural gas averages $3/mcf. First Call's operating CFPS forecast is $4.74 in 2019. There is no justification that I can think of for RRC to be trading for less than 4X operating CFPS. AR closed on Friday at 2.35 X CFPS for 2018 and GPOR closed at 1.73 X CFPS for 2018. GPOR is the most profitable company in the Sweet 16 with a PE ratio of less than 4. The average PE ratio of the S&P 500 is 22.
Another positive sign is that the First Call price targets for the Sweet 16 have barely moved since the beginning of November. By now, a lot of the analysts' reports that Reuters uses to come up with the First Call price targets have been updated for Q3 results. First Call's price target for Antero Resources (AR) actually went UP this week.
I finished updating the last of the Sweet 16 profiles today. We will be sending out the updated profile on Parsley Energy (PE) on Saturday morning. My valuation of $42.00 compares to First Call's price target of $40.35. PE closed on November 30 at $20.13. They have a lot of their oil hedged and they have firm pipeline takeaway capacity for all of their oil through 2019. Plus, they are getting Gulf Coast prices on a lot of their oil.
Keep in mind that there is some stuff that should ease the pain of low oil prices in Q4:
> Oil prices were high for most of October
> Most of these companies have hedging programs that will help. BTW the companies with lots of their oil hedged will report HUGE mark-to-mark gains on their hedges in Q4.
> Natural gas prices should be much higher for the quarter. They all sell a mix of gas, ngls and oil.
OPEC+ meets on Dec. 6 and a production cut is expected.