Laredo Petroleum (LPI) Valuation Update - May 5

[dan_s]

At the time of this post LPI was trading at $67.70. It is an extremely volatile / high beta stock because it only has 17.3 million shares outstanding.

I have updated my forecast/valuation model for their Q1 actual results and updated guidance for 2022.
I am increasing my valuation by $11 to $156.
Why?
> LPI's Q1 results beat my forecast. Their Q1 operating cash flow of $194.1 million beat my forecast of 190.5 million.
> Their detailed guidance raises the confidence level in my forecast, so it deserves a higher valuation multiple. I just raised it from 3.0 to 3.25 X CFPS.
> Based on oil & gas prices below the current strip, my forecast shows LPI generating approximately $350 million of FCF this year.
> They continue to reduce leverage. An improving balance deserves a higher valuation multiple.
> Production is drifting higher and the amount of unhedged production is increasing.
> Operating cash flow per share should be close to $52.00, so the current share price is ~1.3 X operating CFPS. That is insane for an upstream company that is FCF positive, increasing production & proved reserve and has plenty of running room.

TipRanks: "In the last 3 months, 7 ranked analysts set 12-month price targets for LPI. The average price target among the analysts is $127.86. The 7 price targets range from $105 to $172. The most recent price target update is dated 5/5/2022 from Gabriele Sorbara at Siebert Williams Shank & Co who rates it a BUY with a price target of $165.

This one is not for the "faint of heart". If you are a trader that likes "channel stocks" this one is a classic. The top of the channel over the last six months is just below $90.

[Fraser921]

Just took a starter position.

Tends to move with oil and I think oil is going up

[Fraser921]

Laredo is significantly hedged for 2022 though and its hedges this year have an estimated negative $590 million in value at current strip. It has hedged around 73% of its oil production, 46% of its production of NGLs and 68% of its natural gas production.

Laredo's Hedges are as low as 48.34. Q2 is somewhat better