Sweet 16 Midyear Update - June 29

[dan_s]

Half the way through 2024 the Sweet 16 is up 7.79% YTD (not including dividends), which is good, but the portfolio is trading at a 54.75% discount to my current valuation. Oil and gas prices moved higher in Q2 and most of the companies will report higher production, so Q2 financial results should be very good.

The S&P 500 Index is up 14.15% YTD, with tech stocks leading the way. AI stocks continue to trade at very high PE ratios.

Leading the pack are:
> SilverBow Resources (SBOW) up 30.09%, thanks to pending merger with Crescent Energy (CRGY), which is down 7.85% YTD.
> Diamondback Energy (FANG) up 29.09%
> Magnolia Oil & Gas (MGY) up 19.02%
> Permian Resources (PR) up 18.75%

APA Corp. (APA) is down 14.27% YTD. Q2 results should be very good since it will be the first full quarter since the Callon Petroleum merger. APA trades at just 2.49 X my 2024 operating cash flow per share (CFPS) forecast, which compares to the Sweet 16 average multiple of 3.45 X CFPS. An all-out war between Israel and Hezbollah might impact APA's operations in Egypt, but at this point that is just "noise". APA's upside is in the Permian Basin.

EOG Resources (EOG) and EQT Corp. (EQT) are down 2.82% and 4.35% respectfully YTD. These are high-quality large-caps that both will get nice revenue boosts from rising natural gas prices.

Crescent Energy (CRGY) is my Top Pick for 2H 2024:
> At $11.85 the stock is trading below book value. The Company is profitable and generating lots of free cash flow in 2024; over $570 FCF per my 2024 forecast model.
> TipRanks: "In the last 3 months, 7 ranked analysts set 12-month price targets for CRGY. The average price target among the analysts is $16.88. The 7 price targets range between $13 and $20."
> Dividends are $0.12 per quarter for annualized yield of 4.05%. Company has confirmed that dividends will stay the same post-merger.
> Merger with SilverBow should close late in Q3, creating one of the largest producers in the South Texas Eagle Ford / Austin Chalk.
> South Texas has ample pipeline capacity and direct access to Gulf Coast refineries and LNG export facilities. Crescent Point and SilverBow get good prices for all of their production.
> Post-Closing production (250,000 Boepd) mix will be close to 37.5% crude oil, 44.0% natural gas and 18.5% NGLs.
> This stock will get a lot more love from the Wall Street Gang after the merger closes.

Vital Energy (VTLE) trades at the deepest discount to my valuation.
> Current share price is 59% of book value.
> IMO it is a "Screaming Takeover Target". It is a pure play on the Permian Basin with production of 124,719 Boepd in Q1. Current share price is at a deep discount to recent Permian Basin acquisitions.
> TipRanks: "In the last 3 months, 9 ranked analysts set 12-month price targets for VTLE. The average price target among the analysts is $63.22. The 9 price targets range from $46 to $96."
> Q2 results should beat my forecast thanks to higher realized oil & gas prices than my model is based on. If so, the Wall Street Gang's price targets should move toward the high end of the current TipRanks' price target range.

Permian Resources (PR) remains one of my Top Picks.
> On June 28 trading volume was very high at 46,343,163 shares, the average daily volume for PR is 10,361,228. Big volume heading into Friday's close.
> My valuation is $24.00 and PR's Q2 results should beat my forecast.
> TipRanks: "In the last 3 months, 13 ranked analysts set 12-month price targets for PR. The average price target among the analysts is $20.92. The 13 price targets range from $17 to $24."

[dan_s]

Read this if you are interested in CRGY or VTLE: https://mercercapital.com/energyvaluationinsights/acquisition-premiums-return-to-the-oil-patch/

The merger of SBOW into CRGY should be close to an all-stock deal since CRGY's share price is now higher than the cash option.

VTLE is one of the few remaining pure plays on the Permian Basin.