Continental Resources (CLR) - Update

[dan_s]

In the last 3 months, 16 ranked analysts set 12-month price targets for CLR. The average price target among the analysts is $53.79. Their price targets range from $45 to $70.

CLR closed at $53.79 on 12/29/2017.

It is crystal clear that most of the Wall Street firms are still using very low commodity prices in all of their upstream valuation. NONE of CLR's oil is hedged. To get a valuation of $45 for this stock, I have to assume an oil price of $35/bbl for all of 2018 and 2019.

Things to remember about CLR:
> It is heavily weighted to oil and does not have any of its oil hedged, so if oil prices go higher this one has a lot of upside for us.
> Assuming a realized oil price of $50/bbl, CLR should generate approximately $2.8 Billion in cash flow from operations in 2018. Their 2017 capex budget was $1.95 Billion.
> They use the Successful Efforts method of accounting. It is more conservative than the Full Cost method used by most upstream companies. So, focusing on cash flow from operations is even more important. During a period of rising oil prices, CLR will report higher EPS than a Full Cost company.
> They still get most of their oil production from North Dakota (Bakken & Three Forks). Weather will impact North Dakota production in Q1.
> They have HUGE upside in SCOOP/STACK and lots of running room. < This is the company's primary focus now.
> Annual production growth s/b approximately 20%.
> They are going to report "kick ass" Q4 results thanks to a big increase in production and higher realized oil prices.
> They don't break out NGLs from natural gas when they report results, so the gas price I'm using in the model ($2.80/mcf) may be too low.

My valuation of CLR goes up $21.50 to $85.00. < This stock is going to get a lot of upgrades if oil prices hold near current levels. Q3 2017 production was 242,788 BOE per day and Harold Hamm has publicly said that their 2017 exit rate will be 280,000 to 290,000 BOE per day. Based on outstanding well results in STACK, I think it will be near the top of that range.

Go read our updated profile on CLR. It should be a Core Holding in most energy sector portfolios.