Laredo Petroleum (LPI) Valuation Update - Nov 6

[dan_s]

LPI closed at $66.93 on November 4. This is a VERY HIGH BETA STOCK with a 52-week trading range of $51.23 to $120.86.

TipRanks: "In the last 3 months, 5 ranked analysts set 12-month price targets for LPI. The average price target among the analysts is $87.20. The five price targets (all updated 10/18 to 11/4) range from $71 to $127."

I have updated my forecast/valuation model based on their Q3 actual results (very good with adjusted operating cash flow of $189.8 million / $11.22 per share) and $51 million of free cash flow that they are using to payoff debt and buy back shares. My valuation is reduced by $6 to $117 per share.

LPI is a very interesting stock. The per share numbers are "stunning":
> They only had 16,915,000 shares of common stock outstanding at 9-30-2022 and they are continuing to buyback shares.
> 2021 Actual: Reported Net Income of $145.0 million ($8.49/share) and Adjusted Operating Cash Flow of $451.2 million ($26.42/share)
> First 9 months of 2022 Actual: Reported Net Income of $513.3 million ($30.34/share) and Adjusted Operating Cash Flow of $632.4 million ($37.39/share) < These strong results were done despite having to pay $423.7 million of cash settlements on this year's "Bad Hedges".
> Based on the Company's updated guidance: Q4 should generate another $153.2 million of operating cash flow ($9.06/share)
This stock is trading at 1.54 X 2022 operating cash flow per share.

So what's wrong here?
> LPI had 81,714 Boepd of production in 2021
> Production rose to 87,032 Boepd in Q2 2022, but declined to 79,613 Boepd in Q3 and the midpoint of their q4 quidance is 74,000 Boepd.
> Recent well results have been disappointing (the Leech pad)
> The Wall Street Gang needs more confidence that they can reverse the production decline.
> The good news is that most of their really "Bad Hedges" expire at 12-31-2022. 2023 revenues should increase even if production volumes don't bounce back.
> My 2023 forecast is based on production averaging 76,000 Boepd.
> If Laredo's production does ramp back up to where it was in Q2 2022 and oil prices stay over $90/bbl my valuation of $117 will be going higher.

[Roadster]

Thank you Dan. What are your thoughts on the management of Laredo? Could you feature it in one your weekly presentations?

Why is your projection for 4th quarter EPS only $ 4.24 ??? Third quarter was $ 19.95 EPS.


Cash Flow for 2022 is a whopping $ 46.44 !

[dan_s]

Q3 included a non-cash mark-to-market gain on their hedges of $226.6 million and Gain on asset sales was $4.3 million.
So, Adjusted Net Income in Q3 was $106.6 million or $6.30/share.
Reported Net Income or "GAAP" Net Income is a very misleading number for upstream oil and gas companies. Learn to ignore them and focus on operating cash flow. The "bean counter" (I am one) have not screwed that up as much.

Laredo's production guidance is 5,600 Boepd lower for Q4.