Sweet 16 Update - May 18

[dan_s]

The Sweet 16 gained 0.75% during the week ending May 17. The portfolio is now up 12.46% YTD.
The S&P 500 Index also had a good week, up 1.64% on hope that the Fed would actually lower interest rates this year. It is now up 10.81%.

The rate of inflation may have declined, but there is no chance that consumer prices will return to "Pre-Biden" levels as long as we keep printing money. How many times will Joe Biden say that the inflation rate was over 9% the year before he took office before someone at CNN will corrects him? Is it too much to ask our president to tell the truth?

Rising gold prices will pull up oil prices. Gold and oil are hedges against inflation.

SilverBow Resources (SBOW) spiked to the top of the Sweet 16 leader board with the announcement that it will be merging into Cresent Energy (CRGY) in a stock-for-stock deal. I like the deal structure, so I am recommending that you accept the non-taxable stock-for-stock transaction.
> You do have the option to take $38 cash per share at closing, but your gain will be taxable.
> SBOW closed at $37.48 on Friday, now up 28.89% YTD.
> For each share of SBOW you will get 3.125 shares of CRGY, which closed at $12.02 on Friday.
> Crescent Energy will continue to pay dividends of $0.12/quarter.
> The two companies had combined production of 257,163 Boepd in Q1 2024 with a mix of 45.4% natural gas, 36.9% crude oil and 17.7% NGLs. 78% of their Q1 2024 revenues were from liquid sales. Rising natural gas prices will significantly improve this deal.
> KKR and other "Heavy Hitters" are involved in this company, which is trading at a deep discount to fair value.

Top 4
> SBOW up 28.89%
> FANG up 27.46%
> SM up 26.42%
> VRN up 24.82% < This was Crescent Point Energy (CPG). Name changed to Veren Inc. on 5/15

[dan_s]

Vital Energy (VTLE) closed on Friday at $49.53, which is less that 50% of my updated valuation of $105/share. My valuation is just 3.25 X annualized operating CFPS. 4X this year's operating cash flow of $27.60 is $110.40.

TipRanks' CFPS share forecasts are $28.58 for 2024 and $30.55 for 2025. < Truist Financial's price target is $75/share.

My updated profile and forecast/valuation model have been posted to the EPG website and the profile will be emailed to all EPG members on Monday morning.

Vital reported outstanding Q1 2024 results with completed well results that continue to beat the pre-drill type curves. Their recent Horseshoe wells are 20% cheaper to complete and the well-level economics are outstanding.

There is nothing that I can see which justifies VTLE trading at less than 2X operating cash flow per share.
> It is free cash flow positive and their oil hedges lock in FCF this year.
> On a path to increase production by more than 25% year-over-year in 2024, after increasing production 17.1% YOY in 2023.
> Running Room: Lot of high-quality / low-risk drilling inventory
> Still needs to pay down some debt, but the balance sheet is in OK shape with no near-term debt issues.
> The only negative is that Vital doesn't pay a dividend. It is an Aggressive Growth company, which reminds me of Matador Resources (MTDR), which was ignored by the Wall Street Gang, until it wasn't.

[Lbark]

Dan. I own silverbow in my IRA. Since there are no tax consequences, would it make sense to sell it at this price and redeploy the money into some of the other stocks? Could always buy crescent third or fourth quarter.

[dan_s]

I'm not selling SBOW.
TipRanks' price target is $16.25 for CRGY.
When the deal closes, you will get 3.125 shares of CRGY for each SBOW share you own. 3.125 X $16.25 = $50.78 price target for SBOW

CRGY also pays a nice dividend, so perfect holding for an IRA account.

Post-closing CRGY will draw a lot of attention since production mix is going to be approximately 45% natural gas, 37% oil and 18% NGLs.

Raymond James price target has been updated to