Sweet 16 Update - Nov 15

[dan_s]

For the week ending November 14th the Sweet 16 gained 1.42%, but it is still down 7.24% YTD.
The S&P 500 Index gained 0.23% and is now up 14.49% YTD. The index is up 20% since the Democrats said the economy and the market would crash because of Trump's Tariffs.

Three of the Sweet 16 are now involved in very large mergers.
> Vital Energy (VTLE), one of the largest companies in our Small-Cap Growth Portfolio, will be merging into Crescent Energy (CRGY) in mid-December.
> Civitas Resources (CIVI) will be merging into SM Energy (SM) sometime in Q1 2026.

Size does matter in this sector and I like the fact that post-closing, Crescent Energy and SM Energy should be large enough to be added to the S&P 500 Index. If that happens there are a lot of index funds that will be required to buy them. Raising capital is also much easier and cheaper for upstream companies that have large proven reserves. All four companies are trading at deep discounts to book value, which should be impossible for profitable companies that are generating a lot of free cash flow.

Based on my forecasts:
> Crescent Energy should generate over $2.4 billion of Adjusted Operating Cash Flow in 2026 ($7.35/share). TipRanks' consensus CFPS forecast for Crescent Energy is even higher at $7.63/share. A post-merger price target of 3X operating CFPS is actually conservative.
> SM Energy as a standalone company is on pace to generate over $2.0 billion of Adjusted Operating Cash Flow in 2025 ($17.59/share). Based on my Proforma forecast for the combined company, SM + CIVI should generate close to $4.5 billion ($18.82/share) of CFPS.
> These mergers are both stock-for-stock transactions, so income tax free.
> Both companies will be in the Top 10 largest independent upstream oil & gas companies when the deals close. SM could be as high as #4.

I checked TipRanks Premium this morning to see what their consensus price targets are for each company. Here is where they were this morning:

> Based on 7 Wall Street analysts offering 12 month price targets for Crescent Energy Company Class A in the last 3 months. The average price target is $13.83 with a high forecast of $17.00 and a low forecast of $10.00. The average price target represents a 48.23% change from the last price of $9.33.

> Based on 6 Wall Street analysts offering 12 month price targets for Vital Energy in the last 3 months. The average price target is $20.60 with a high forecast of $30.00 and a low forecast of $16.00. The average price target represents a 17.51% change from the last price of $17.53. < At Closing, Vital shareholders will get 1.9062 shares of CRGY for each of their VTLE shares.

> Based on 10 Wall Street analysts offering 12 month price targets for SM Energy in the last 3 months. The average price target is $32.67 with a high forecast of $42.00 and a low forecast of $23.00. The average price target represents a 73.13% change from the last price of $18.87.

> Based on 12 Wall Street analysts offering 12 month price targets for Civitas Resources in the last 3 months. The average price target is $36.92 with a high forecast of $55.00 and a low forecast of $27.00. The average price target represents a 29.86% change from the last price of $28.43. < At Closing, Civitas shareholders will get 1.45 shares of SM.

Soon after the mergers close, the surviving companies (CRGY and SM) will provide more detailed guidance and, assuming oil, gas and NGL prices are close to what I've used in my forecast models, they should draw a lot more attention from the Wall Street Gang. CRGY and SM do pay decent dividends, which they promised they will keep paying after the mergers close.

CRGY and SM have both promised to have modest drilling programs in 2026, with the goal of maximizing free cash flow.
> Crescent Energy has said that it plans to sell a lot of non-core assets for proceeds of $1 Billion.
> SM Energy said that it will not be making any significant asset sales, at least until mid-2026. They expect free cash flow from operations will solve any of their debt that comes due in 2026 and 2027.

All Sweet 16 companies had positive Adjusted Net Income for the 3rd quarter with only two, Crescent Energy and Northern Oil & Gas (NOG) reporting GAAP Net Losses because they booked some big non-cash impairment charges. All 16 companies are going to be free cash flow for the year 2025 and they should have no difficulty remaining free cash flow positive in 2026, primarily because they all produce a lot natural gas and NGLs.

NOG has the highest dividend yield, ~8.1%.

EQT and RRC are within 10% of my current valuations. They are both large-cap "gassers", so if natural gas prices stay over $4.00/MMBtu my valuations will increase.

AR, EQT and RRC all produce more than 98% natural gas and NGLs as measured by Boepd. The only three companies that produce more than 50% crude oil as measured by Boepd are FANG, MTDR, NOG.

Solaris Energy Infrastructure (SEI) pulled back last week for no reason I can find, other than its very high trading volume. The Day Traders are working this one hard. Buying the dips should still be the best bet. Based on my valuation it has at least 26% upside. TipRanks' consensus price target is $59.80, $2.80 higher than my valuation of $57.00.

We have published updated profiles on 8 of the companies and I hope to get the remaining 8 published before Thanksgiving.

This weekend I am updating all of the Small-Cap Growth Portfolio company forecasts.
> Baytex Energy (BTE) made a big move last week, announcing the sale of its South Texas assets for more than the company's market-cap.
> Journey Energy (JOY.TO) and Spartan Delta (SDE.TO) are both up more than 100% YTD.

[dan_s]

As of November 16

My updated Sweet 16 Forecast Spreadsheet has been uploaded to the EPG website. You can view it directly from the home page, but it is best to download it to Excel.
> Tab 1: All of the 16 stock valuations have been updated for Q3 results and fresh guidance from each company.
> On tab 2 you can see my updated Sweet 16 forecasts for Q4 2025 and the year 2026. Note that Actual Net Income is GAAP Net Income, not Adjusted Net Income. My forecasts are Adjusted Net Income, so they can be compared to First Call's and other analysts' forecasts.
> On tab 3 you can see my updated forecast for the companies in our Small-Cap Growth Portfolio. Several of the Small-Caps have been the biggest gainers this year.
> On tab 3 I still have some work to do on the companies in our High Yield Income Portfolio. I should have it updated by Tuesday.

At Tuesday's Houston luncheon at Maggiano's: I will have some opening comments about the Global Oil Market and U.S. natural gas market at our Houston luncheon. We still have ten seat available, but you must register on the EPG website or send Sabrina and email at energyprospectus@gmail.com < Non-Members are welcome to attend for $30.

Updated Profiles for CRGY, DVN and PR are ready for my review. I will get at least two of them done on Monday.