Crescent Energy (CRGY) Valuation Update - Feb 27

[dan_s]

Crescent Energy had a good conference call this morning. You should all listen to the replay when you have time.
> The assets that came with the SilverBow Resources merger are doing better than they expected.
> This is a growth through M&A company, but they are going to sell some non-core assets soon to shore up the balance sheet before making more accretive acquisitions.
> Near-term goal is to get the balance sheet to be "Investment Grade", which will lower the interest rate on their credit facility.
> They believe that they are not getting credit for the upside they have in the Uinta Basin. Several other companies are reporting outstanding well results in the Uinta Basin in Utah.
> Crescent Energy is now the 3rd largest producer in the Eagle Ford / Austin Chalk play in South Texas. Higher natural gas and NGLs will give them a nice revenue boost this year.
> 2025 production mix should be approximately 40.5% oil, 42.0% natural gas & 17.5% NGLs.
> South Texas has plenty of pipeline access, so they can get their natural gas and NGLs to good markets.
> 2025 revenues should be over $3.8 billion, about $100 million higher than revenues were in 2024.
> Operating cash flow should be $1.7 to $1.8 billion, with free cash flow over $700 million.

I have updated my forecast/valuation model, using the mid-point of their 2025 production guidance. Production will be down ~10,000 Boepd from Q4 to Q1 just because of their well completion schedule. They completed a lot of wells in Q4. They will ramp up well completions in Q2 and the largest quarter-over-quarter production growth should be in Q3. Production in Q4 2025 should be over 270,000 Boepd, compared to 255,000 Boepd in Q4 2024.

Crescent Energy's Q4 2024 Adjusted Operating Cash Flow of $468.8 million beat my forecast by $80 million. As I posted yesterday, GAAP or Reported Net Income is almost a worthless number for upstream companies that use the Successful Efforts method of accounting. They are required to use FAS 121 rules to mark-to-market assets that are sub-economic based on the SEC guidelines for commodity prices.

My current valuation for CRGY is now $25.00/share, which is just 3.75 X annualized operating cash flow per share. At the time of this post CRGY is trading for less than 2X my 2025 CFPS forecast of $6.75. BTW TipRank's current CFPS forecast for 2025 is $8.52.