Ranger Oil Corp (ROCC) Valuation Update - Aug 8

[dan_s]

At the time of this post ROCC was trading at $33.91.

TipRanks: "In the last 3 months, 3 ranked analysts set 12-month price targets for ROCC. The average price target among the analysts is $58.33. The 3 price targets range from $52 to $68."

I have updated my forecast/valuation model for Ranger's Q2 results that beat my forecast for Adjusted Operating Cash Flow ($4.10/share) and production. Their updated guidance is inline with my model assumptions.

I have increased my current valuation by $4 to $84/share.

Why?
> I have now seen three full quarters of results since the merger with Lonestar.
> My confidence in the forecast model has increased and therefore I can increase the valuation multiple from 5.0 to 5.25 X annualized operating cash flow per share. Strong Balance Sheet, FCF and lots of running room deserve a higher multiple.
> Ranger now is using FCF to paydown debt and fund a stock repurchase program.
> Ranger has outstanding production growth that is fully funded by operating cash flow (14.9% in 2021 and on pace for 47% in 2022).
> Based on their guidance, production should ramp up from 38,479 Boepd in Q2 to over 46,000 Boepd in Q4 2022.
> Unhedged production volumes will increase in Q3 and in Q4.
> They are setting up for a VERY STRONG YEAR IN 2023.

ROCC is a prime candidate for promotion to the Sweet 16 if CLR goes private.

[Fraser921]

Bargain time > DOWN 10 %!!!!

Big disconnect from your $ 84 valuation and what market thinks.

Dan should you modify your mark up on ebitda to max of 4 x in the models?

Well... I just got it for 50 less than the valuation!

[dan_s]

You can adjust the valuation multiple in each of my forecast models to whatever you think is reasonable. All you have to do is download the model to Excel and click on the cell that shows the valuation. The valuation formula will show on the fx line at the top of the spreadsheet. For ROCC just change 5.25 to 4.0 and the valuation will update automatically.

I think for ROCC that a valuation multiple of 5.25 X annualized operating cash flow is conservative.
> I raised it from 5X to 5.25X because of the strong Q2 results and updated guidance that confirmed my forecast model assumptions.
> Ranger is on pace for 47% YOY production growth, fully funded by operating cash flow. < This is incredible growth, which shows the quality of their Eagle Ford leasehold.
> Ranger is on pace to generate over $300 million of free cash flow this year.
> Ranger has also started a stock repurchase program that should add to the pre share valuation.
> My 2023 forecast is based on production of 50,000 Boepd, which now looks too conservative since Q4 production s/b 46,000 Boepd.

There is a lot more upside: Go to column AD and you will see that if 2H 2022 plays out as I have modeled, 6X 2022 operating cash flow per share will be a reasonable price target of $109.50.

Upstream valuations are still suffering from the "Paradigm" that oil prices will come down in the near future because of the Green Bad Deal, EV's or a prolonged recession will lower oil demand. As I pointed out on slide 7 of my Saturday podcast, this world's current energy crisis with regard to oil is "not a demand problem, it is a supply problem". The coming winter is going to expose how short oil really is.