Sweet 16 Update - Jan 27

[dan_s]

Thanks to a 7.6% increase in the price of oil during the week, the Sweet 16 gained 3.7% during the week ending January 26th, but it is still down 3.53% YTD.
The S&P 500 Index is up 2.24% thanks to seven large tech stocks, that IMO look extremely overvalued. The rush to invest in AI has caused a bubble in that sub-sector.

The "Elite Eight" for 2024 are now CPG, DVN, FANG, EQT, MTDR, OVV, PR, RRC. Size does matter in this business, so I consider these 8 to the be the safest for long-term investors. They all pay dividends and most of them have stock buybacks underway.

Now that I have updated all 16 forecast/valuation models, I think it is appropriate to look forward at PE ratios and operating cash flow multiples based on 2024 forecast.
> The average PE for the group is 6.69 based on Adjusted Net Income for 2024.
Silverbow (SBOW) and Vital Energy (VTLE) trade at the lowest PE ratios (3.07 and 3.83), partly because they are two of the three companies that do not pay dividends. Antero Resources (AR) has the third highest PE ratio (9.61) despite not paying a dividend.
> The average multiple of operating CFPS is 3.01. < Incredibly low for companies of this quality.
SBOW and VTLE also trade at the lowest CFPS multiples (1.09 and 1.56). Both companies are free cash flow positive, and I expect both of them to report solid Q4 2023.
VTLE has already reported Q4 2023 production that was more than 8,000 Boepd above my forecast.
SBOW recently closed the Chesapeake South Texas Acquisition that is a large deal and "transformative" for a company of this size. Their 2024 detailed guidance should help move the stock price to a more reasonable level.

I moved Diamondback Energy (FANG) back into the portfolio to replace Callon Petroleum (CPE) that is merging into APA Corp. (APA). FANG pays the highest dividends in the Sweet 16; 8.3% based on my forecast.

Devon Energy (DVN) also pays a nice variable dividend what should be a yield over 6.5% this year.

We should see several companies (AR, CRK, EQT and MGY) announce Q4 2024 financial results on February 13 & 14. As I mentioned in Thursday's webcast, Q4 results always take longer since the companies are required to finish their 3rd party reserve reports and their full-year financial audits before they can release Q4 results. We should see a few more companies release Q4 operating results over the next two weeks.

I expect all of the Sweet 16 to report GAAP Net Income that meets or exceeds my Q4 forecasts since realized oil, gas and NGL prices should exceed what my models are based on.

[dan_s]

The Sweet 16 summary spreadsheet will be posted to the EPG website this afternoon.

It shows my current valuations compared to First Call's current price targets.

For each company it also shows the following under tab 1:
> Market-Cap as of 1/27
> Book value as of 9/30/2023 < the last audited financials < Six of the companies (AR, BTE, CRK, CPG, VTLE, SBOW) trade below book value.
> Earnings per share for year 2022, 2023 by quarter and year 2024 < You can find 2024 by quarter and my full year 2025 forecasts on the individual company models.
> PE ratio for each company based on my 2024 forecast
> Operating cash flow per share based on my 2024 forecast
> Percent of Q4 2024 production from natural gas and NGLs based on 6/1 ratio for ngas. AR, CRK, EQT and RRC are the four "gassers" that get the majority of their revenues from natural gas and NGL sales.
> Dates that I expect each company to announce Q4 2023 results.