Talos Energy (TALO) Valuation Update - May 7

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

Talos Energy (TALO) Valuation Update - May 7

Post by dan_s »

After this morning's conference call three energy sector analysts submitted updated forecasts and price targets to TipRanks.
All three rate TALO a BUY.
> Subash Chandra at Benchmark Co. (highly respected) keeps his price target at $20.00
> Nathaniel Pendleton at Stifel Nicolaus increased his price target to $19.00
> Michael Scialla at Stephens increased his price target to $24.00

My valuation increases by $0.50 to $21.00 per share. < Just 3.5 X annualize operating cash flow per share. My CFPS forecast for 2024 is $5.47, which compares to TipRanks' consensus CFPS forecast of $6.21.

My forecast is based on the midpoint of Talos' updated 2024 production guidance of 92,000 Boepd. If they can avoid significant tropical storm related shut-ins, they should be able to make that goal.

Talos is a pure play on the Gulf of Mexico. If you are comfortable with the hurricane risk, there is significant upside in the Company's deepwater projects. My Q3 production forecast includes 10,000 Boepd cushion for weather related shut-ins.

Talos is and should remain free cash flow positive. They should generate close to $1 billion of operating cash flow this year, which should give them $300 million of free cash flow.

The QuarterNorth Energy Acquisition that closed on March 4th adds a lot of upside. Q2 will be the first full quarter of combined results.

Think of the Gulf of Mexico as "Big Game Hunting". There are lots of risks, but also a lot of upside. For example, Talo's Katmai West #2 well could add up to 100 million Boe of recoverable reserves.

Due to the hurricane risk, I might be moving TALO back to the Watch List if I can find a replacement. If I gain more confidence in natural gas prices, AR or RRC would be good fits. Near-term outlook for natural gas remains bearish, but long-term outlook is bullish. This country will need a lot of new natural gas fired power plants for AI to have a chance at being successful. There is a mountain of money wanting AI to succeed.
Dan Steffens
Energy Prospectus Group
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