Sweet 16 Update - April 12

[dan_s]

During the week ending April 11 the Sweet 16 gained 0.69%, but it is down 18.53% YTD.
The S&P 500 Index gained 2.86% during the week, but it is still down 8.81% YTD.

The "Tariff War" has created a high level of uncertainty. I hope that Team Trump will start announcing several favorable trade deals with significant trading partners soon. National Economic Council Director Kevin Hassett said Thursday that 20 countries have already made offers. “There’s a bunch of offers that are really sensible offers, and they’re coming from our top trading partners,” he said. “It’s some of the most progress in trade negotiation we've seen, probably the most progress that we’ve ever seen.”

Once investors believe that "The Sky is not falling", I believe the FEAR of the Tariff War will fade and the bargain hunting rally will begin.

I have updated the Sweet 16 Summary Spreadsheet, and it will be posted to the EPG website this afternoon.
> My valuations for all of the Sweet 16 are still based on WTI oil averaging $70/bbl in 2025 and $75/bbl in 2026. For U.S. natural gas prices I am basing the valuations on Henry Hub natural gas prices averaging $4.15/MMBtu in 2025 and $4.50/MMBtu in 2026.
> I do have "cushions" in my operating cash flow forecasts for all future periods.
> During the week ending April 25 (before I start working on the April newsletter) I will decide how much I need to adjust my commodity price deck. If I was doing it today, I would drop the oil price $5/bbl for Q2, Q3 and Q4. I still think a "Bidding War" for natural gas in Q3 is likely. The natural gas storage report of the week ending April 11 is going to be bullish, showing a storage build much lower than the 5-year average. LNG exports continue to rise week after week.

Only two of the Sweet 16 (EQT and VRN) are up YTD.
EQT because it is the closest to a pure "Gasser" and VRN because it will soon be merging into WhiteCap (WCP.TO).

On April 11th the Sweet 16 closed at a 99.59% discount to my current valuations and a 59.23% discount to the current First Call price targets.

I am watching the First Call consensus price targets carefully. They have not come down very much; less than 5% for all of the Sweet 16 since March 31st. First Call's price targets for AR and EQT are actually up slightly in April. < This tells me that (a) most energy sector analysts were already using conservative oil & gas prices in their forecast models and (b) they agree with me that the supply/demand fundamentals for global oil and U.S. natural gas point to higher prices than the recent pullbacks we've seen in the futures market.

Even if WTI does average $60/bbl for 2025 and 2026, all of the Sweet 16 should be able to remain free cash flow positive. Keep in mind that the Sweet 16 all survived the impact of the Covid 19 Pandemic, which was much worse. Oil and gas prices are MUCH HIGHER today than they were in 2020 an 2021.

All of the forecast models and profiles for the Sweet 16 companies have been updated for Q4 2024 results and updated guidance for 2025 from each company.
> On Tab 2 under column V you can see the date that each company is expected to announce Q1 2025 results.
> EQT on April 22 and MTDR on April 23 will be the first two to announce Q1 results.

Profiles and forecasts are also up-to-date for all ten companies in our Small-Cap Growth Portfolio.

We still have a few more profiles (HME.V, IPO.TO, PEY.TO and VNOM) that we need to update for the companies in our High Yield Income Portfolio.

Tab 3 of the Sweet 16 Summary Spreadsheet shows information about the Small-Cap and High Yield companies.

[KGardiner]

Does anyone know what percentage of CapEx might be subject to tariffs?

This is not something I have any clue about, but it seems to me that the tubular steel is a big expense.

Thanks
Kevin Gardiner

[dan_s]

Use 5% increase in tubular prices. It depends on where the steel is coming from.