Great week for the Sweet 16, as the "Gassers" continue leading the pack.
During the week ending July 29 the Sweet 16 gained 19.09% and is now up 56.99% YTD. The S&P 500 Index also gained 3.44%, but is still down 13.34% YTD.
The overall market gained despite the Fed raising interest rates another 0.75% just because Chairman Powell expressed his opinion that with low unemployment, he expects just a mild recession. It just takes less FEAR to get some money back into the market. In my opinion, FEAR that a recession will lower demand for oil is overblow. Yes, a recession will impact demand for transportation fuels but the global oil market is currently undersupplied and depleted petroleum inventories around the world must be refilled. A recession will not have much impact on demand for US natural gas and NGLs. Keep in mind that natural gas prices are set by regional fundamentals and the US gas market is very tight.
Five of the Sweet 16 announced Q2 results last week and they all met or exceeded my forecast. They all provided detailed guidance that raises the confidence in my forecast/valuation models, so they deserve higher valuation multiples.
Antero Resources (AR): I have raised my valuation by $7 to $70 (TipRanks PT = $50.88)
Continental Resources (CLR): I am holding my valuation at $93 until the BOD announces how they are going to respond to Harold Hamm's $70/share offer. (TipRanks PT = $74.71)
EQT Corp. (EQT): I have raised my valuation by $3 to $62 (TipRanks PT = $54.08)
Matador Resources (MTDR): I have raised my valuation by $10 to $98 (TipRanks PT = $79.57)
Range Resources (RRC): I have raised my valuation by $1 to $49 (TipRanks PT = $37.76)
The other 11 companies will announce Q2 results next week.
SilverBow Resources (SBOW), the smallest company in the Sweet 16, has joined AR and EQT in the "100% Club". Friday's closing price of $45.19 (a gain of $8.03 for the week) puts the share price up 106.25% YTD. My pre-release valuation is $100/share. SilverBow has closed the acquisitions of Sundance and Sandpoint. From Q1 production of 37,667 Boe per day, they now expect to have Q4 production of approximately 53,000 Boe per day (66% natural gas, 23% crude oil and 11% NGLs). If their guidance for 2H 2022 confirms my forecast model assumptions, my valuation multiple will be going up. SilverBow has a low share count (22.3 million), so changes in the valuation assumptions have big impact on the price target.
Comstock Resources (CRK) will announce Q2 results on Monday after the markets close. Comstock is close to a pure gasser. 99% of its production is natural gas coming from the Haynesville Shale. CRK made a bit of a comeback last week, gaining $2.35 to $15.93, but it is still trading at less than half of my pre-release valuation of $35.00. Based on my forecast, the Company's Adjusted Net Income per share for Q2 should beat First Call's EPS estimate of $0.95 (which has been drifting higher during July). If the HH ngas price averages $8.00/MMBtu during 2H 2022, Comstock should generate close to $1 Billion of FCF this year. There seems to be a "False Paradigm" that Comstock has a debt problem. Let me be clear: IT DOES NOT HAVE A DEBT PROBLEM. In fact, it has paid off all of its credit facility and has no near-term debt maturities.
Thanks to the closing of the Bighorn Acquisition on 4-14-2022, I expect Earthstone Energy (ESTE) to report a BIG increase in production from Q1 to Q2. If the Titus Acquisition closes in September, the Company's Q4 2022 production is forecast to be over 94,000 Boe per day with a 2022 exit rate over 100,000 Boepd likely. That compares to Earthstone's actual 2021 production of 24,779 Boepd. Aggressive Growth may be out-of-favor with the Wall Street Gang this year, but if oil, gas and NGL prices stay anywhere close to where they are today Earthstone is setting up for a STUNNING year in 2023 (over $5.00 EPS and over $10 operating CFPS).
Northern Oil & Gas (NOG) and PDC Energy (PDCE) are also trading at less than half of my valuations ($60 and $146). In addition to strong grow, and a lot more running room, they both pay nice dividends.
Eight of the Sweet 16 will report Q2 results after the markets close on Wednesday, August 3. That is when my head will explode with "information overload". I will do my best to get the forecast/valuation models updated as soon as I can.
All 16 companies have solid balance sheets, are generating lots of free cash flow and they have lots of low-risk / high-return drilling inventory (what I call "running room"). There is still a lot of upside for these stocks.
For more information download the updated Sweet 16 main spreadsheet which is updated on the EPG website each weekend.
Sweet 16 Update - July 30
Sweet 16 Update - July 30
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - July 30
Goldman Sachs Top Five Picks based on their Q2 forecasts:
MarketWatch
By Claudia Assis
Recession fears hit E&P sector, but Goldman chooses 5 to shine
Goldman Sachs on Monday, July 25 picked five top energy stocks ahead of their quarterly earnings, saying it keeps a "constructive" view on the sector thanks to cash flows and valuations, among other highlights.
Investor sentiment has turned "more negative" on the E&P sector, due to concerns about a looming global recession, the analysts at Goldman Sachs said. The SPDR Energy Select Sector exchange-traded fund (XLE) has tumbled about 20% since closing at an eight-year high on June 8 through afternoon trading on Friday, while the S&P 500 index has lost 3.6% over the same time.
The analysts, however, "maintain a long-term constructive/bullish posture given strong cash flow, discounted valuation, the growing strategic value of U.S. gas/oil, and improving returns on and of capital," they said.
A "key focus" for the quarter will be on production execution, the ability to manage costs amid higher inflation, capital returns outlook, and managing commodity risks through hedging, the analysts said.
Here are the five top picks for the Goldman Sachs analysts:
Diamondback Energy Inc.'s (FANG) recent shift to higher free cash flow allocations toward capital returns "should help differentiate the company relative to peers," the analysts said.
Highlights for Chesapeake Energy Corp. (CHK) are its natural-gas assets, which underpin "attractive (free cash flow) generation supported by a strong balance sheet," the analysts said. "We believe (Chesapeake Energy) is on track to provide strong capital returns to shareholders and close the value gap vs. its peers," including a 16% dividend yield over the next four quarters.
Unlike Diamondback Energy and Chesapeake Energy, Pioneer Natural Resources Co. (PXD) has outperformed "peers since the recent correction, which we believe is in part due to its strong balance sheet and attractive dividend yield," the Goldman analysts said. Goldman expects Pioneer to declare an $8.24 a share dividend, which would be an about 15% annualized divided yield, "which we believe can be further enhanced longer-term through modest production growth and opportunistic share repurchases."
EQT Corp. (EQT) is well positioned to benefit from a favorable long-term natural gas outlook, and enjoys upside from better capital efficiency from its new-well design plus exposure to improved pricing. "We see potential for EQT shares to re-rate with further balance sheet improvement and more allocation of FCF toward capital returns," the Goldman Sachs analysts said.
Natural-gas producer Ovintiv Inc. (OVV), formerly known as Encana, is on Goldman's radar as its free cash flow allocation toward share buybacks "can allow the shares to close the relative gap vs. peers," the analysts said.
MarketWatch
By Claudia Assis
Recession fears hit E&P sector, but Goldman chooses 5 to shine
Goldman Sachs on Monday, July 25 picked five top energy stocks ahead of their quarterly earnings, saying it keeps a "constructive" view on the sector thanks to cash flows and valuations, among other highlights.
Investor sentiment has turned "more negative" on the E&P sector, due to concerns about a looming global recession, the analysts at Goldman Sachs said. The SPDR Energy Select Sector exchange-traded fund (XLE) has tumbled about 20% since closing at an eight-year high on June 8 through afternoon trading on Friday, while the S&P 500 index has lost 3.6% over the same time.
The analysts, however, "maintain a long-term constructive/bullish posture given strong cash flow, discounted valuation, the growing strategic value of U.S. gas/oil, and improving returns on and of capital," they said.
A "key focus" for the quarter will be on production execution, the ability to manage costs amid higher inflation, capital returns outlook, and managing commodity risks through hedging, the analysts said.
Here are the five top picks for the Goldman Sachs analysts:
Diamondback Energy Inc.'s (FANG) recent shift to higher free cash flow allocations toward capital returns "should help differentiate the company relative to peers," the analysts said.
Highlights for Chesapeake Energy Corp. (CHK) are its natural-gas assets, which underpin "attractive (free cash flow) generation supported by a strong balance sheet," the analysts said. "We believe (Chesapeake Energy) is on track to provide strong capital returns to shareholders and close the value gap vs. its peers," including a 16% dividend yield over the next four quarters.
Unlike Diamondback Energy and Chesapeake Energy, Pioneer Natural Resources Co. (PXD) has outperformed "peers since the recent correction, which we believe is in part due to its strong balance sheet and attractive dividend yield," the Goldman analysts said. Goldman expects Pioneer to declare an $8.24 a share dividend, which would be an about 15% annualized divided yield, "which we believe can be further enhanced longer-term through modest production growth and opportunistic share repurchases."
EQT Corp. (EQT) is well positioned to benefit from a favorable long-term natural gas outlook, and enjoys upside from better capital efficiency from its new-well design plus exposure to improved pricing. "We see potential for EQT shares to re-rate with further balance sheet improvement and more allocation of FCF toward capital returns," the Goldman Sachs analysts said.
Natural-gas producer Ovintiv Inc. (OVV), formerly known as Encana, is on Goldman's radar as its free cash flow allocation toward share buybacks "can allow the shares to close the relative gap vs. peers," the analysts said.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group