Vital Energy (VTLE) Update - Jan 27

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Vital Energy (VTLE) Update - Jan 27

Post by dan_s »

Vital Energy (renamed from Laredo Petroluem) is getting a little love from Raymond James notes below. They raised their price target $5 to $68. My valuation of $117/share is just 2.5 X annualized operating cash flow per share.

Thoughts on the Quarter

4Q22 Outlook: Vital pre-released production estimates for the fourth quarter that came in well above expectations at 35.5 bmo/d and 77.5 mboe/d while maintaining their capex range of $135-145M. Looking ahead to 2023, Vital has already expressed plans to add another completion crew for the first half of 2023, meaning total capex (RJe $653M, Street, $655M) will be weighted towards the first half of the year with production ramping in the back half.

RECOMMENDATION
We are encouraged by Vital’s shift in focus to capital returns as well as debt reduction, but operational setbacks each of the past few quarters certainly gives us pause. At the current strip we believe buybacks may be off the menu as the company will likely focus on debt reduction in a sub $90/bbl price environment. VTLE is still valued at an incredibly low 2.5x 2023 EV/EBITDA and set for a 17% FCF yield in 2023. The valuation remains compelling despite the recent setbacks, likewise we reiterate our Outperform rating, and raise our target price to $68/share on model adjustments.

VALUATION
Our new $68 target price is based on a discounted cash flow model. We believe a DCF approach is the most appropriate method of valuing E&Ps given the industry’s focus on free cash flow and shareholder returns. We used a higher 15% discount rate given the small cap size.
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MY TAKE: As Raymond James points out, this Company has had some operational "issues" and a very low share count (just 16.9 million shares outstanding) which causes wild swings in the share price, frightening many investors. If they can just show steady production growth this year, investors will focus more on the fantastic numbers ($34 Net Income per share and $47 operating cash flow per share in 2022). My 2023 forecast is 81,000 Boepd, Net Income of $395 million ($23.78/share) and operating cash flow of $773 million ($46.55/share). VTLE will be one of the most profitable companies in the Sweet 16 on a per share basis this year.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Vital Energy (VTLE) Update - Jan 27

Post by dan_s »

Raymond James 2023 forecast: $30.08 earnings per share and $47.26 operating cash flow per share. < Higher than my forecast.

In my humble opinion, a profitable upstream company that is generating free cash flow and (hopefully) steady production growth should NEVER trade for less than 2X operating CFPS.
Dan Steffens
Energy Prospectus Group
Fraser921
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Joined: Mon Mar 22, 2021 11:48 am

Re: Vital Energy (VTLE) Update - Jan 27

Post by Fraser921 »

>price target $5 to $68. My valuation of $117/share

WOW-- Should I just avg the two numbers?
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Vital Energy (VTLE) Update - Jan 27

Post by dan_s »

This can happen with small-caps that grow into mid-caps but don't increase the share count.
> There are only 16.9 million shares of VTLE outstanding and it has very little float. This is a very low number of shares for a company with close to 80,000 Boepd of production.
> Big funds that buy and hold shy away from stocks with little float.
> Trading volume average is over 680,000 shares per day. A rather high percentage of the float.
> So, retail investors that react to news, rumors, the weather, etc. can cause big swings in stocks like this.

52-week range is $45.70 - $120.86

TipRanks: "In the last 3 months, 6 ranked analysts set 12-month price targets for VTLE. The average price target among the analysts is $78.17. The 6 price targets range from $54 to $135 by Stifel on 12/19/2022 when the oil price was lower than it is today.

My model uses estimated realized prices (net of cash settlement on hedges and regional differentials) of $82/bbl oil, $2.50/mcf natural gas and $23/bbl of NGLs and I come up with $1.4 billion of revenues and $723 million of operating cash flow. The Company is free cash flow positive and there is nothing that justifies it trading for less than 1.5 X operating cash flow per share. TipRanks' operating cash flow per share forecast for 2023 is $49.36 for 2023 and $53.51 for 2024, which are actually higher than my current forecasts.

They are actually funding a stock repurchase program, which will make the per share numbers even better.

Conclusion: This stock is a Day Traders Dream. It remains in the Sweet 16 because it is grossly undervalued. If WTI does go to $100/bbl, this stock could set a new 52-week high.
Dan Steffens
Energy Prospectus Group
Fraser921
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Joined: Mon Mar 22, 2021 11:48 am

Re: Vital Energy (VTLE) Update - Jan 27

Post by Fraser921 »

Thanks
ChuckGeb
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Re: Vital Energy (VTLE) Update - Jan 27

Post by ChuckGeb »

The stock buybacks for this one further exasperates the public float issue. Maybe they should do a stock split or find an equal merger partner like Callon to get on the institutional managers buy list. With so few shares outstanding the initiatives should be pay debt and pay dividends. IMHO
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Vital Energy (VTLE) Update - Jan 27

Post by dan_s »

I agree 100%. This company does not need a stock repurchase program. Paying off debt is a much more efficient way to increase equity value.

First, they need to generate steady production growth.
Dan Steffens
Energy Prospectus Group
willvanam
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Joined: Thu Feb 28, 2013 1:56 pm

Re: Vital Energy (VTLE) Update - Jan 27

Post by willvanam »

Given the dismal production perhaps manufacturing a squeeze is easiest value creation. I own some from 48ish below book

https://bisoninterests.com/content/f/vi ... discounted
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