Laredo Petroleum (LPI) Valuation Update - Aug 17

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

Laredo Petroleum (LPI) Valuation Update - Aug 17

Post by dan_s »

I spent about three hours yesterday looking at Laredo Petroleum and we sent out an updated profile on the Company this morning. It is also available in the EPG website home page.

Despite maybe going too conservative on my forecast/valuation model, I have a high level of confidence in the model.
My forecast model assumptions are production of 80,000 to 80,500 Boepd in 2H 2022 and 87,000 Boepd in 2023.
My Q3 forecast is Adjusted Net Income of $99.8 million / $5.80 EPS and Adjusted Operating Cash Flow of $201.2 million / $11.69 per share.
TipRanks' Q3 forecast (average of six analysts) is $7.62 EPS and $13.65 operating CFPS.

The per share numbers are so incredible for Laredo that I keep thinking "what am I missing". Annualized operating CFPS based on my formula that double weights 2022 is $43.43. There is nothing that I see that justifies LPI trading at less than 1.5 X CFPS.
> The balance sheet is in good shape, with no near-term debt problems and plenty of liquidity.
> They have lots of running room with over 600 development drilling locations (8+ years of low-risk inventory)
> The Company is clearly committed to generating free cash flow, which is still being used to pay down debt and start a stock repurchase program.
> They will probably start paying dividends next year.
> They did report some disappointment in the six well Leech package as the wells are producing more ngas and less oil than they expected. With natural gas prices over $9.00, this may end up being a good thing.
> Full year production will only be up 1% to 3% this year because of the Company's commitment to FCF generation.
> Even with flat production, Laredo's operating cash flow and free cash flow will move up faster in 2023 (see chart on page 2 of the profile).

Bottomline: If Laredo's actual results for the next six quarters match my forecast, LPI could go over $200/share by the end of 2023.

TipRanks 8-17-2022: "In the last 3 months, 6 ranked analysts set 12-month price targets for LPI. The average price target among the analysts is $124.67. The six price target range from $102 to $172."
Dan Steffens
Energy Prospectus Group
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