Concho Resources (CXO) Update - Dec 28

[dan_s]

I am now half the way through updating the Sweet 16 forecast/valuation models and so far CXO is the most impressive.

CXO closed at $102/share today.

In December, six analysts have updated their forecast models and submitted them to Reuters. Their valuations are $158 to $196. My valuation in the December newsletter was $145.

After updating my forecast model, I am increasing the valuation to $164. < If you think WTI will rebound to $60/bbl then you can take CXO's valuation up to more than $200/share. On 11/25/2018 Derrick Whitfield at Stifel Nicolaus rated CXO a BUY with a $230 valuation.

~53% of their 2019 oil production is hedged at $56.41/bbl. They are going to book a HUGE mark-to-market gain on their hedges in Q4 2018.

MORE IMPORTANT: Concho is funding all of their 30% annual production growth with cash flow from operations. If their average oil price (including hedge settlements) is $50/bbl in 2019 they should generate more than $3.3 Billion of cash flow from operations in 2019. < This compares to $2.6 Billion cash flow in 2018.

FWIW the First Call price target is $178.67.

[dan_s]

BTW Q4 2018 is the first full quarter since CXO merged with RSP Permian on 7/19/2018.