Earthstone Energy (ESTE) Update - Nov 7

[dan_s]

Earthstone Energy (ESTE) closed at $11.82 on November 5. It is up 121% YTD.

I have updated my forecast/valuation model for ESTE and I have raised my current valuation by $1.50 to $21.00 per share.

Earthstone's Q3 production of 25,836 Boe per day beat my forecast and the mid-point of their Q4 production guidance is 29,000 Boepd with a 2021 exit rate likely to exceed 31,000 Boepd. This compares to their full-year 2020 production of 15,273 Boepd.

The company has now closed three acquisitions this year using a combination of debt and equity and they still are going to generate over $80 million of free cash flow from operations. If WTI oil averages over $70/bbl in 2022, Earthstone should generate over $4.00 operating cash flow per share next year. With a strong balance sheet and lots of running room, a reasonable 12-month price target is 6X operating cash flow or $24.00.

ESTE will be moving to our Small-Cap Growth Portfolio to make room for Matador Resources (MTDR). This is not a "demotion" for ESTE. I'm just moving it because of size. ESTE has a lot of upside for us because the Wall Street Gang has yet to figure this one out.