Sweet 16 Update - Oct 27

[dan_s]

What the heck is the deal with October? Some of the largest market "corrections" have happened in October.

The price of oil was $51.84 on October 26, 2017 and twelve months later it closed at $67.62 today. Up 30.4% in twelve months.
The prices of natural gas and NGLs are also higher and the outlook is bright for gas and propane as winter approaches.

The Sweet 16 got swept up in the overall market selloff and hedge fund managers threw out "the baby with the bathwater". Over a decade ago I worked with a hedge fund and when the selloff started the fund manager sold everything, regardless of individual company fundamentals.

Continental Resources (CLR) is the only Sweet 16 company that is up YTD and it is only up 1.08% as of the October 26, 2018 close. CLR is on-track to generate close to a $Billion of free cash flow from operations and generate more than 21% YOY production growth. What's really weird is that First Call price targets for 9 of the 16 companies actually went up this week. The Wall Street firms are not telling their clients to sell upstream oil & gas companies.

All of my valuations are based on $65/bbl WTI for all future periods, so none of my valuations have moved lower an in fact they will probably be raised as strong Q3 results come in.

Range Resources (RRC) reported Q3 results on October 23rd that beat the First Call EPS estimate (5th quarter in a row that they beat FC estimates) and the share price went down. Range's Q3 production mix was 67.5% natural gas, 29.5% NGLs and only 3.0% crude oil. If the price of oil went to zero it would hardly impact my valuation of RRC at all. The outlook for natural gas and NGL prices is FANTASTIC. Read this: https://seekingalpha.com/article/421397 ... 19?page=16


All of the Sweet 16 companies are going to report solid Q3 results and all of them are growing production and proven reserves at double digit rates.

So... what gives? You have to decide for yourself:.
1. Is the global economy going to meltdown, so oil, gas and NGLs will no longer be needed?
2. Are investor so consumed by "Irrational Fear" that they will sell everything and bury their cash in the backyard.
3. Or is this a normal "correction" that happens from time-to-time (usually in October) and a great buying opportunity.

These companies will report Q3 results next week: AR, CXO, CLR, EOG, GPOR, MTDR, NFX and PE.

[jb2257]

CLR reports this afternoon and there is an implied move of + or - 9%. I am surprised that they are still selling it today before the earnings unless someone knows something, but it seems that you would see some volume in the puts if they are predicting some bad news. This is one that the analysts like with a price target of $78.00 (Wells Fargo) and $75.00 (Seaport Global). Any thoughts on what's going on? I'm down 12% so far.

[dan_s]

None of CLR's oil is hedged. Adjusted EPS s/b be $0.70 to $0.80.

My valuation (based on $65/bbl for WTI for future periods) is $90.
On 10/23/2018 Raymond James valued it at $107/share (based on their new oil price forecast of $85/bbl WTI by Q4 2019).

[jb2257]

They beat on the top and bottom line, but is not trading much after hours.