Crescent Energy (CRGY) Valuation Update - Aug 10

[dan_s]

CRGY closed on August 9 at $10.47. TipRanks' price target is $17.20 based on the average of six analysts' report, BUT only three of them have been updated since the merger with SilverBow Resources closed on July 30.

The merger is a significant transaction and the Wall Street Gang is going to be very conservative until they gain more confidence in their post-merger forecasts. That will probably take three months, when Crescent Energy reports Q3 actual results and detailed guidance for Q4 2024 and 2025.

I have updated my forecast/valuation model for Crescent Point's solid Q2 results that were slightly better than my forecast. For 2H 2024 and 2025, I have combined my SilverBow forecast with the Crescent Point standalone estimates for 2H 2024. I've added some "cushions" to lower my operating cash flow forecasts for each future period. My Q3 and Q4 2024 operating cash flow forecasts are lower than the current TipRanks' consensus forecasts.

My valuation is now $24.50, which compares to TipRanks' price target of $17.20.

My valuation multiple is just 4X annualized operating cash flow per share. I believe that is a reasonable multiple because Crescent Energy has post-merger production over 250,000 Boepd and a lot of high-quality "Running Room" in South Texas. It is a bit "gassy", but South Texas natural gas prices are MUCH BETTER than natural gas prices in the Permian Basin.

Based on my forecast, Crescent Energy has 68% of their oil and 54% of their 2H 2024 proforma production volumes hedged at good prices, which reduces their commodity price risk. They also have some good hedges in place for 2025; over ~50% of their 2025 natural gas is hedged at an average price of ~$3.70/mcf.

CRGY's current share price is less than 2X operating cash flow per share. The Company is free cash flow positive and it pays a decent dividend; ~4.58% based on the current share price.

TipRanks' consensus forecast for 2025 is $2.13 EPS with $7.96 operating CFPS. That is higher than my 2025 forecast.

On August 7 Wells Fargo and Truist Financial updated their price targets to $20 and $19.