Sweet 16 Update - Aug 26

[dan_s]

The Sweet 16 gained 0.47% during the week ending August 25 and it is now up 14.67% YTD.
The S&P 500 Index gained 0.94% during the week and it is now up 14.75% YTD.

"Fear of the Fed" drives "Fear of Recession", which is the noise keeping a lid on oil prices. However, WTI flopping around $80/bbl is still a very profitable range for the Sweet 16. My Q3 forecasts are based on WTI averaging $80 and HH natural gas averaging $2.50, so each week that passes gives me more confidence in the Q3 forecasts.

I hope to finish the newsletter this weekend and publish it on Monday, so I will keep this short.

Watch the replay of Thursday's webinar to get my current outlook for oil and gas prices.
Here is the direct link to the replay: https://www.youtube.com/watch?v=WjQhTwDyC_A

During the week I spent time working on my models for CPG, ESTE, EQT, FANG, NOG and PR. The merger of ESTE into PR creates a "Permian Basin Powerhouse" that deserves to be a core holding for any Growth & Income Fund. The Wall Street Gang is a "herd" that is going "Ga-Ga" over it already. The Big Paradigm Shift will draw a lot of attention to companies like PR and FANG.

FANG has replaced AR in the portfolio. AR has been moved to the Watch List, pending better ngas and NGL prices.

SilverBow Resources (SBOW) still leads the pack up 47.77% YTD, but Permian Resources (PR) is now making its run, up 42.66% YTD.

Crescent Point (CPG) has made some deals that should draw a lot of attention.

Matador Resources (MTDR) and SM Energy (SM) are possible takeover targets being mentioned in several articles I've seen. Callon Petroleum (CPE) and Vital Energy (VTLE) should be getting some attention by large-caps wanting to expand their running room in the Permian Basin.

My Sweet 16 Summary Spreadsheet will be posted to the EPG website this afternoon.

[dan_s]

Vital Energy (VTLE) closed on Friday at 1.31 X my operating cash flow per share forecast for 2023. In my opinion, this fact alone makes it a potential Takeover Target.

Range Resources (RRC) closed at 7.45 X my operating cash flow per share forecast for 2023. It is justified because they hold leasehold that contains close to 20 Trillion cubic feet of recoverable ngas reserves in Appalachia.

[Lbark]

If vtle gets taken out that’s bad for us since we lose huge upside. What kind of premium do you think it could get. I own este but not pr so guess upside is with pr

[aja57]

I know that Dan doesn’t rely on P/E multiples for valuation but it’s kind of crazy how the monkeys on Wall Street have responded to the ESTE merger with PR. I mean the market is factoring in a 20% premium multiple for PR compared to the P/E valuation of Diamondback. And if VTLE was trading at the P/E multiple of ESTE, VTLE should be near $240 dollars a share.

[Lbark]

I will take that

[dan_s]

Vital Energy is a "strange" situation. I've heard from some EPG members that Vital's Midland Basin leasehold is "Tier Two". However, the financial results per share are incredible. Tier Two or Tier 100 doesn't matter to me if the company is extemely profitable.

Take a look at these numbers:
> 2021 Actual Results: $8.49 EPS and $26.42 Operating CFPS
> 2022 Actual Results: $37.67 EPS and $47.75 Operating CFPS
> 2023 1H Actual Results: $21.99 EPS and $21.14 Operating CFPS < Q2 EPS include a $222.3 million deferred tax benefit.
> My 2023 full year Forecast: $30.65 EPS and $43.68 Operating CFPS < TipRanks 2023 forecast is $31.27 EPS and $45.11 Operating CFPS
> My 2024 full year Forecast: $20.75 EPS and $43.56 Operating CFPS < TipRanks 2023 forecast is $20.40 EPS and $46.15 Operating CFPS

Vital's per share numbers are so large because it only has 18.6 million shares outstanding, which is small for a company with over 90,000 Boepd of production. IMO they should do a 5 for 1 stock split.

TipRanks: "Stifel analyst Derrick Whitfield raised the firm’s price target on Vital Energy to $122 from $119 and keeps a Buy rating on the shares. Vital’s strategic leadership change and asset quality make it one of the most compelling recovery investment opportunities, the analyst tells investors in a research note."

Five previously submitted price targets submitted to TipRanks (all in August) range from $39 to $82, yet their forecast models show a very profitable company. This is very weird.

[mitchl]

Beyond increasing share count, maybe VTLE has to sell their “Artificial Intelligence” usage to the market more for the wall street gang to show any interest. Wall street seems to care more about this than actual profitability lately…

https://seekingalpha.com/article/4616065-vital-energy-is-an-ai-beneficiary