Sweet 16 Updated Forecasts

[dan_s]

I just finished updating the Sweet 16 Growth Portfolio speadsheet and loaded it to the website. EPG members can log in and click on the Sweet 16 tab to see it. You can download it to Excel.

On the second tab of the spreadsheet you can find my Fair Value estimate (i.e. my rough estimate of what a fair takeover price would be today) and the current First Call 12-month target price. Although my Fair Value esimates and the First Call target prices are close for most of the companies, they are not the same point of view. First Call assumes the companies are going concerns.

For example, my Fair Value for DNR is $8/share higher than the First Call 12-month target price. I give more value to DNR because of their huge CO2 reserves, CO2 delivery system, their expertise for tertiary recovery and long-lived nature of their oil reserves. Plus, DNR sells about 60% of their oil into the Gulf Coast market at more than a $20/bbl premium to WTI. I think several of the analysts submitting forecasts to First Call have missed this very important fact. Take a look at the huge chap between the low and high EPS estimates submitted to First Call. The only way I can get to the low earnings estimates is to use realized oil prices well below the current WTI strip. DNR should report a combined realized oil price well above WTI for Q3 and Q4. (You can access my forecast model for Denbury Resources by clicking on its logo under the Sweet 16 tab on our website.)

As of Friday's closing prices, the portfolio is now 86.9% below my Fair Value estimate of what it would take to acquire all 16 companies. There are a lot of very cheap proven reserves available on Wall Street today. I'm expecting to see several more takeovers announced before year-end.

Some of the upstream MLPs we are tracking are now looking at buying entire companies as a way to add to their cash flows. KMP recently acquired El Paso to get their midstream assets. KMP will sell El Paso's upstream assets.