Callon Petroleum (CPE) Update - March 2

[dan_s]

Callon Petroleum beat my Q4 forecast and production should be up another 35% in 2018.

In the last 3 months, 10 ranked analysts set 12-month price targets for CPE. The average price target among the analysts is $14.53. Wall Street' price targets range from $11.75 to $17.00. None of the forecasts submitted to Reuters have been updated since the company announced Q4 results. I am expecting production and commodity prices to be raised in their forecasts.

CPE is another company that reports natural gas and NGL production on a combined basis. That explains their high realized gas price in q4 of $4.78/mcf.

My valuation remains $17.00 for CPE. I have lowered the common stock valuation from 10X CFPS to 9X CFPS because:
1. CPE is going to outspend their cash flow this year, which is not something investors are keen on these days.
2. CPE added LT debt of $303 million in 2017 and they have preferred stock sitting in front of the common stock.

That said:
> CPE is a pure play on the Permian Basin
> It has strong production and proven reserve growth locked in AND lots of running room
> It is a PRIME TAKEOVER TARGET

My updated forecast/valuation model will be posted to the EPG website later today.