Callon Petroleum (CPE) Update - Dec 5

[dan_s]

Based on my forecast/valuation model, CPE is one of my current "Top Picks" in our Sweet 16 Growth Portfolio.

TipRanks:
"On 12-5-2022 JPMorgan analyst Zach Parham upgraded Callon Petroleum (CPE) to Neutral from Underweight with a $57 price target."
"On 12-1-2022 Roth Capital analyst John White lowered the price target on Callon Petroleum (NYSE: CPE) to $70.00 (from $80.00) while maintaining a Buy rating."
"On 11-28-2022 Stifel analyst Derrick Whitfield raised the price target on Callon Petroleum (NYSE: CPE) to $71.00 (from $69.00) while maintaining a Buy rating."
"In the last 3 months, 8 ranked analysts set 12-month price targets for CPE. The average price target among the analysts is $60.29."

MY TAKE on Callon Petroleum, from my 11-28-2022 newsletter

Callon Petroleum (CPE) is the only Sweet 16 company whose share price is down year-to-date. Their Q3 results and updated guidance point to a much higher share price in a few months.

• CPE was the top performing stock (up 259%) in 2021 and there was some profit taking early in 2022 as investors wisely rebalanced their portfolios.
• Then Callon reported two quarters in a row of declining production, which lead to more selling. Most of the production decline was weather related.
• Callon is one of the most profitable companies in the Sweet 16. Thanks to rising commodity prices, the Company’s revenues (net of cash settlements on their hedges) have increased $735.7 million during the first nine months of 2022, compared to the same period in 2021.
• Free cash flow has reduced the Company’s debt by $330 million YTD and the balance sheet is in good shape. Based on my forecast, Callon’s free cash flow should continue to exceed $100 million per quarter through at least 2023.
• Callon reported Q3 2022 production of 107,316 Boepd, a 6.6% quarter-over-quarter increase and they increased their 2022 production guidance on November 2nd.
• They recently added a 6th operated drilling rig and they plan to bring on a 2nd full-time completion crew early in 2023. The result should be steady production growth in 2023.
• Financial results are strong: Despite some operational difficulties in 1H 2022, Callon is on-track to report over $18.00 earnings per share and over $25.00 operating cash flow per share this year. < There is nothing to justify this stock trading at less than 2X operating CFPS.
• I expect the Company’s 12-31-2022 3rd party reserve report to show a PV10 Net Asset Value of just their proved reserves (P1) well above the current share price.
>>> Callon's production mix is 63% crude oil, 19% NGLs and 18% natural gas.

Conclusion: Callon’s balance sheet is in good shape and they have lots of low-risk / high return “running room”. The annual portfolio balancing that caused CPE to sell-off in early 2022 should cause it to get off to a great start in 2023.