Sweet 16 Update - Jan 21

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Sweet 16 Update - Jan 21

Post by dan_s »

The Sweet 16 gained 1.66% during the week ending January 20th and it is now up 2.27% YTD. < Not including dividends.
The S&P 500 Index lost 0.69% during the week and is now up 3.47%. < The market just needs less "FEAR of the Fed" and confidence that the Chinese economy will stabilize for the next Bull Market to get going.

The Sweet 16 Summary Spreadsheet has been posted to the EPG website. It shows my recently updated valuation and First Call's current price target for each stock. It also shows my Q4 2022 and full year 2023 forecast for each company.

Once we get through Q1, the global oil market is going to get very tight and most of the Wall Street Gang are now forecasting oil prices to go over $100/bbl in six to nine months. There really is very little spare oil supply growth coming to market this year.

Leading the pack:
Callon Petroleum (CPE) up 14.99%.
> CPE was the top performer in the Sweet 16 during 2021 (gaining 259%) and the worst performer in 2022 (loosing 21.5%), despite being the 3rd most profitable company in 2022 with earnings per share of $18.30. Laredo Petroleum (LPI) with EPS of $34.67 and PDC Energy (PDCE) with EPS of $18.69 were the only two companies to beat Callon's 2022 earnings.
> CPE closed on January 20 at $42.65, which is below book value per share. There is nothing I can see that justifies it trading below book value.
> Callon generated more than $600 million of free cash flow in 2022, using most of it to pay down debt. The balance sheet is in good shape with no near-term debt problems.
> Based on my forecast, Callon should generate over $23/share of operating cash flow in 2023, with ~1/3rd of that being free cash flow.
> The Company's production was up more than 9% year-over-year in 2022 and growth of 5% to 10% is expected in 2023.
> My current valuation of $87/share is just 3.5 X annualized operating CFPS and compares to TipRanks' price target of $61.29.
> Production mix is approximately 63% oil, 19% NGLs and 18% natural gas.
> Scott Hanold at RBC Capital and Nitin Kumar CFA at Mizuho Securities recently rated CPE a BUY with price targets of $60 and $59. They are both highly respected ("5 Star") energy sector analysts.

Permian Resources (PR), which I added to the Sweet 16 on 1-1-2023 is off to a great start, up 11.91%.
> They have confirmed Q4 2022 production of ~145,000 Boepd.
> The mid-point of their 2023 production guidance is 157,500 Boepd.
> I expect PR to get a lot of "love" from the Wall Street Gang if their Q4 results match my forecast.
> This Company has a lot of "running room" in the Delaware Basin.
> Revenues are heavily weighted to oil.

Matador Resources (MTDR) up 7.74% YTD and Ranger Oil (ROCC) up 6.31% round out the Top Four.

The Bottom Four:
Comstock Resources (CRK) is down 7.59% because it is a pure "gasser".
> Q4 results are going to be very good with increased production and lots of free cash flow.
> Full year 2022 operating cash flow was ~$1.7 billion, compared to $908 million in 2021.
> The balance sheet is in great shape, with zero near-term debt problems.
> Even if their realized natural gas price is $3.00/mcf in 2023, Comstock will generate over $1 billion of operating cash flow this year and free cash flow.
> Comstock has a lot of running room.
> They have been talking to some of the major LNG export companies about dedicated gas supply contracts, which may draw more Wall Street attention.

Antero Resources (AR) down 5.13% and SilverBow Resources (SBOW) down 5.45% are also gassers, but they do have significant liquids production.
> They will both report very strong Q4 results.
> SilverBow will report a significant increase in production and they will adjust this year's drilling program to focus on increasing oil production.

SM Energy (SM) is down 4.54% YTD
> On January 9th Mizuho Securities initiated coverage on SM Energy with a Buy Rating and a Price Target of $51. < Nitin Kumar at Mizuho is a highly respected ("5 Star") energy sector analyst.
> SM is expected to report production growth of ~3,000 Boepd from Q3 to Q4 (to 141,000 Boepd) and growth to 146,000 Boepd in 2023.
> Production mix is approximately 43% oil, 41% natural gas and 16% NGLs.

Obviously, the "Gassers" will need some help from the weather to support higher natural gas prices. Take a look at Chicago's 10-day forecast which shows temperatures dropping into the teens by the end of January. I still expect another "Wild Ride" for natural gas prices in 2023. A colder than normal February and getting Freeport back online would help.

The first companies to report Q4 results will be AR, CRK, EQT, MGY and RRC February 14 & 15. Upstream Oil & Gas companies always report Q4 results later than most pubic companies because they are required to include 3rd party reserve reports annually.

All of the Sweet 16 are expected to report strong Q4 results. They are extremely profitable companies at today's oil, gas and NGL prices.
> The balance sheet is in good shape and they have lots of "running room" in the Permian Basin and South Texas Eagle Ford/Austin Chalk play.
Last edited by dan_s on Sat Jan 21, 2023 12:34 pm, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Sweet 16 Update - Jan 21

Post by dan_s »

Sweet 16 companies that closed below book value (based on 9-30-2022 balance sheet): CPE, CPG, ESTE, VTLE, ROCC and SBOW.

Profitable upstream companies should never trade below book value because of the SEC's rules for impairment / ceiling tests.

Since all 16 companies are free cash flow positive, they have no near-term debt issues.
Dan Steffens
Energy Prospectus Group
KGardiner
Posts: 110
Joined: Mon Feb 08, 2021 5:18 pm

Re: Sweet 16 Update - Jan 21

Post by KGardiner »

Dan,

I was able to download all of the Sweet 16 Forecast Models.

However, after repeatedly trying, logging out and back in, closing the browser, etc, I've been unable to download any Small Cap or High Yield models. A few days ago I was able to download TALO no problem.

Not sure if anyone else is having similar issues.

Thanks
Kevin
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Sweet 16 Update - Jan 21

Post by dan_s »

Send a note to Sabrina at energyprospectus@gmail.com

I just went to the EPG website, clicked on the Small-Cap tab and downloaded several forecast models to Excel. If you can view them, you should be able to download them.
Dan Steffens
Energy Prospectus Group
KGardiner
Posts: 110
Joined: Mon Feb 08, 2021 5:18 pm

Re: Sweet 16 Update - Jan 21

Post by KGardiner »

Thanks
I'll do more work on my end first.
Kevin
KGardiner
Posts: 110
Joined: Mon Feb 08, 2021 5:18 pm

Re: Sweet 16 Update - Jan 21

Post by KGardiner »

I figured out what the forecast download issue was.

I had too many completed downloads listed across the bottom of my browser. Until I deleted them it wouldn't let me download any more files.

There were no popups or any other error indicator to tell them this. Just Silence ...

FYI: I was using Google Chrome.
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Sweet 16 Update - Jan 21

Post by dan_s »

Computers can be very frustrating. My desktop is almost 8 years old and I know I need a new one, but I hate the hassle of the upgrade process.

For me, I think the new server for the EPG website is faster than the old one. Everything seems to be working now.
Dan Steffens
Energy Prospectus Group
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