Callon Petroleum (CPE) Update - Jan 4

[dan_s]

Each year in January I roll forward my forecast models for each company in our Sweet 16. I am breaking out 2022 by quarter and adding my initial forecast for 2023. Since the companies have not yet provided production guidance for 2022 or 2023, I am assuming that their production for Q4 2021 is the same as Q1 2022 and then modest growth from there forward. I am using the forward oil & gas prices mentioned in my January 1 podcast, adjusted for regional differentials and each company's hedges. NGL prices are a bit of a WAG, but I think I am being conservative.

All of the companies have a lot more unhedged production in 2022 and their collars have higher ceilings. All of the Sweet 16 are going to generate a lot of free cash flow from operations in 2022.

My valuation of each stock is based on annualized operating cash flow per share X a multiple that I think is appropriate. I give double weight to my 2022 operating cash flow per share forecast because IMO stock valuations should be forward looking. For CPE the formula is [2021 CFPS + (2X 2022 CFPS) + 2023 CFPS]/4 x 3.5.
3.5 is a low valuation multiple, but I want to be conservative since CPE just recently closed a large acquisition.

Callon Petroleum (CPE) was the top preforming stock in 2021, gaining 259% during the year.
It continues to be one of my Top Picks in the Sweet 16.
My valuation increases by $2 to $90 per share.
At the time of this post it is trading for $54.88. First Call's price target is $70.07
TipRanks: "In the last 3 months, 7 ranked analysts set 12-month price targets for CPE. The average price target among the analysts is $71.57."

Timing: Callon closed the Primexx Acquisition on 10-1-2021, so they are going to report a BIG production increase from Q3 to Q4 2021 (+18,000 Boepd) and Callon has a lot of high quality running room in the Permian Basin. I believe the Company's Q4 results and year-end reserve report is going to earn them a lot of Wall Street Gang upgrades.

You can find my detailed profile on CPE under the Sweet 16 tab on our website.