Sweet 16 Update - April 22

[dan_s]

During the week ending April 21 the Sweet 16 lost 6.63% and is now down 9.44% year-to-date.
The S&P 500 Index lost just 0.11% during the week and it is up 7.66% year-to-date.

From week to week the #1 reason for share price moves is the Fear of Recession vs the Fundamentals, primarily economic news from China, Russian oil exports and EIA/IEA weekly and monthly reports. Fear is a powerful emotion, but the fundamentals win out in the end for all commodities. My opinion is that the fundamentals point to much higher oil, gas and NGL prices in 2H 2023, especially for crude oil.

Permian Resources (PR) continues to lead the pack, up 10.96% YTD.

This coming week five of the Sweet 16 are expected to release Q1 results:

April 24: Range Resources (RRC), that despite being one of the four large-cap gassers is up 1.92% YTD.

April 25: Matador Resources (MTDR), which closed the Advanced Energy Acquisition on April 13 that adds 25,000 Boepd of production (~74% oil). Matador is an "Aggressive Growth" company that targets annual production growth of 15% to 20%. Current production is over 120,000 Boepd (~60% crude oil).

April 26: EQT Corp. (EQT) is the largest natural gas producer in North America. Of their 4.8 Bcfpd of natural gas production, ~69.2% is hedged at just over $4.50/MMBtu. EQT's reported net income for Q1 will include a very large mark-to-market gain on their hedges. Operating cash flow should exceed $1billion.

April 26: Antero Resources (AR). For me, AR has the most uncertainty because they sell a lot of NGLs and NGL prices are very hard to predict. Twelve energy sector analysts have submitted Q1 EPS forecasts to Reuters/First Call that range from a loss of $0.05 per share to net income of $1.14 per share. AR, EQT and RRC all have very good marketing teams, so my guess is that their realized natural gas and NGL prices will be higher than what most of the analysts are using in their forecast models. Three 5-Star analysts have recently adjusted their price targets for AR to $33, $34 and $35. My current valuation of AR is $36. In my opinion it deserves to trade at a multiple of 6X annualized operating CFPS because it controls over 17.8 TCFE of proved reserves (P1), of which 42% are liquids. My 2023 forecast is based on HH ngas averaging $2.50/MMBtu this year.

April 27: SM Energy (SM). SM's share price is just 2.14 X my 2023 operating cash flow per share forecast of $12.73. SM is a very profitable company that (based on my forecast) should generate over $400 million of free cash flow this year. Yesterday (April 21), Scott Hanold from RBC Capital maintained a Hold rating on SM Energy, with a price target of $43.00. Scott is a 5-Star energy sector analyst. TipRanks shows an average price target of $40.33.

Keep in mind that upstream companies that hedge a lot of production are going to include non-cash mark-to-market gains on their hedges in their Q1 results. "Adjusted Net Income", that don't included MTM gains or losses is what you should compare to First Call and my forecasted earnings per share.

I will be spending about half of today's podcast reviewing my updated Sweet 16 summary spreadsheet. All of the Sweet 16 companies should report positive net income for Q1, with several reporting earnings per share much higher than the current First Call estimates.

[Fraser921]

There is a risk analysts will adjust their models lower and downgrade price targets after earnings. It will be interesting to watch. AR publishes approximately what they get on liquids and the number is down substantially. If you think NG will soar longer term, you should buy. I'm going to take a wait and see approach to see what develops and short term there could be a pullback risk.

It looks like EQT is in best shape with their hedges.

[ChuckGeb]

Do you have earnings release schedule for rest of Sweet 16?

[ChuckGeb]

For those who might be interested:
5/2 CRK
5/3. CPE. SBOW
5/4. APA. ESTE. MGY
5/5. EOG
5/8. DVN. PR. TALO. REPX
5/9. OVV. VTLE
5/12 CPG