Laredo Petroleum (LPI) PT Update - Aug 18

[dan_s]

From the team at Raymond James

Updating Estimates Post Divestiture; Reiterate Outperform with a new price target of $95.00
We're updating estimates after 2Q results and the divestiture of Howard County non-op
assets. LPI had a good financial quarter, beating EBITDA by 8% vs. RJ/Street expectations
while EPS of $7.50 fell in line with RJ but beat consensus by 3%. Unfortunately, poor well
results out of the Leech project (6 x 3-mile laterals) pushed FY22 production estimates
lower. Looking at the divestiture, the decision makes sense to us. The cash from the sale
will immediately help the company achieve its debt reduction and share repurchase goals
($700M debt reduction/$200M share repurchases by YE23). These goals were set in a higher
price environment, but even with the divestiture, lowered production (Leech) and the sale,
we anticipate LPI churning through ~$500M of the $900M goal. Given the stock’s pullback
and strong 34% FCF yield in 2023, we reiterate our Outperform rating, but lower target price
to $95/share to account for recent setback on Leech project. < Keep in mind that the Leech "setback" is that the wells are producing more natural gas than they expected. Considering what natural gas prices have done lately, that might turn out to be a good thing.