EOG Resources (EOG)

[dan_s]

EOG is the largest company in the Sweet 16 by a rather wide margin. It has been in the Sweet 16 for over ten years, so I have a VERY HIGH level of confidence in my forecast/valuation model.

In the last 3 months, 11 ranked analysts set 12-month price targets for EOG. The average price target among the analysts is $109.27. The price targets range from $101 to $122.
EOG closed at $107.91 on Friday, December 29.

Most of the analyst's reports included above are based on very low commodity price decks, even the higher valuations are only using $50 oil.

I have updated my forecast/valuation model for EOG and it will be posted to the EPG Website later today. My valuation increases by $21 to $142.


Thing to remember about EOG:
> Production mix is approximately 55% crude oil, 15% NGLs and 30% natural gas.
> NONE OF EOG'S LIQUIDS ARE HEDGED
> Like the other large-caps, the new tax laws give EOG's bottom line a big boost. This has a lot to do with my increased valuation.
> EOG's drilling program is focused on increasing oil production at annual rates of 15% if oil stays at $50 and 25% if oil stays at $60. They have a habit of beating their guidance, so I am assuming 22.5% production growth in 2018 and 21% production growth in 2019.
> This company generates a lot of cash flow from operations: $4.5 Billion in 2017, $5.8 Billon in 2018 and $7.2 Billion 2019 (based on a realized oil price of $50/bbl).
> They have access to all the capital they need, but they can fund all of their growth with operating cash flows now.

EOG is a "Core Holding" quality company that will go a lot higher if oil prices push higher.

[mattreue]

Dan, I used your model with crude prices of $60 in 1Q18, $65 2Q, $70 3Q, and $75 4Q. I know those are big predictions, but using your model of 14xFCF, and knowing that historically oil equities do not start their true recovery until 6 months after stable higher oil prices,(which would be in March 2018) do you have any big disagreement with a PT of $196 after 4Q18?

[dan_s]

If WTI goes to $75, EOG has a lot of upside as to all of the Sweet 16.

[dan_s]

From TPH:
Last night, EOG released details of the impact tax reform will have on the business. With the federal corporate rate lowered to 21%, expect to see a $2.2B non-cash deferred tax write down on the Q4 income statement. In addition, the repeal of AMT makes existing AMT carryovers refundable and as a result, the company expects a cash refund of ~$700mm between now and 2021. Finally, EOG expects to pay ~$200mm for deemed repatriation of foreign earnings, which will be paid over the next 8 years. All-in, this results in a $500mm net cash benefit to EOG, with additional annual benefits as a result of the lower federal corporate tax rate. While our 3P NAV remains unchanged at $102/sh at $51 / $2.81 LT, a rough cut at updating our model would result in +$17/sh of added upside. Name remains a top pick as we see 2018 setting up to be another beat-and-raise year, resulting in top-tier oil growth while generating meaningful FCF at strip.