Sweet 16 Update - Dec 23

[dan_s]

Merry Christmas to all!

All of the Sweet 16 forecasts for Q4 and 2024 have been updated to adjust for the new oil and gas prices I discussed on Thursday's podcast.
> WTI: $75 in Q4 and $80 average for the year 2024.
> HH ngas: $3.00 in Q4 and $3.25 average for the year 2024.

On each company's forecast model I do adjust for their hedges and regional oil & gas price differentials.
> There are wide variances in realized commodity prices between the companies, so it is best to look at each company's forecast model.
> You can download the forecasts to Excel on your computer to make adjustments to the oil and gas prices in future periods to see how they impact stock valuations. The models are all "macro driven" Excel spreadsheets and easy to use. If you need help find a teenager to help you.

Under Tab 1 of the Sweet 16 Summary spreadsheet my Q4 and 2024 forecasts shown in columns M and O are "Adjusted Net Income" per share, which are comparable to Earnings Per Share forecasts shown by First Call and other analysts. Be advised that "Reported Net Income" or "GAAP Net Income" will me much different for companies that hedge a lot of production because for Q4 the mark-to-market ("MTM") adjustments (a non-cash item in the income statement) will be significant for several companies.

During a quarter where the oil & gas prices declined, the MTM will be booked as a gain. I expect all of the Sweet 16 with hedges (especially the "gassers") to report much higher earnings per share in Q4 than they did in Q3. When the companies release Q4 results always focus on Operating Cash Flow. < "Cash pays the bills, not reported earnings."

It has been a weird year for the Sweet 16. Two of the top performing stocks (EQT and RRC) are "gassers" and the worst performing stock (CRK) is a "gasser" that has proven up what looks like a World Class resource play in East Texas. If HH gas prices do average $3.25 in 2024, Comstock should have a very good year.

Permian Resources (PR) is up 43.8% YTD and I consider it the #1 most likely takeover target. Their merger with Earthstone (ESTE) was a brilliant move; creating a powerhouse Permian Basin company with over 310,000 Boepd of current production and a lot of Running Room. If PR were to merge with Diamondback Energy (FANG) it would create a company worth at least what Exxon will be paying for PXD.

EOG Resources (EOG) is down 5.6% YTD despite generating another year of strong earnings, more than 8% YOY production growth and announcing an increase in their variable dividend policy. I may be moving EOG to our High Yield Income Portfolio.

[Fraser921]

>Operating Cash Flow. < "Cash pays the bills, not reported earnings."

Re: Operating Cash Flow

How much is deducted for cap ex ?

[dan_s]

As I said in the last webinar, capex is shown on each company's forecast model. Free Cash Flow is Adjusted Operating Cash Flow - D&C Capex.

[dan_s]

The forecast models for all of the companies in our Small-Cap Growth Portfolio and our High Yield Income Portfolio have now been updated.