Talos Energy (TALO) Update - Oct 19

[dan_s]

The note below is from Stifel, which sends me daily updates on the stocks they follow. Michael Scialla is a super smart energy sector analyst.

Talos Energy Inc. (TALO, $12.36, Buy; Target $18.00)
Meeting Takeaways from Differentiated Energy Story - Michael S. Scialla

We hosted virtual non-deal roadshow meetings with investors and TALO management on 10/14 and 10/18. In our view, the meetings highlighted the company's differentiated and underappreciated investment proposition. The stock is the cheapest in our group on virtually every metric despite TALO's solid financial position, strong track record of creating value from inexpensive acquisitions, and high impact exploration success. An emerging CCS (carbon capture) business underscores management's forward thinking and could prove to be an advantage in future oil and gas property acquisitions from major oil companies concerned about full-cycle carbon emissions. Potential catalysts for the stock over the next 12-18 months include a CCS agreement with an industrial emitter, an accretive acquisition, an appraisal well at the Puma West discovery, and a resolution on Zama Field.
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My current valuation of TALO is $28.00. I have adjusted my model for their guidance that Q3 production will be ~10,000 Boepd lower than Q2 because of Hurricane Ida related shut-ins. Talos sustained no serious damage from the hurricane and their production is now back to pre-hurricane level and should be up to ~67,000 Boepd by year-end. All of their production sells into the Gulf Coast market at premium prices. Based on my forecast model, Talos should generate over $5.00 operating cash flow per share this year and over $8.50 operating CFPS in 2022. IMO a realistic 12-month price target is 5X operating CFPS.