Energy Prospectus

In the last 3 months, 8 ranked analysts set 12-month price targets for CXO. The average price target among the analysts is $158.13. Valuations range from $136 to $175. The low end valuations are clearly based on much lower oil prices than we have today. Even if I assume $40 oil for 2018, the company will generate $1.6 Billion in cash flow from operations, which is enough to cover 100% of their current drilling program.

CXO is trading at $150.60 today. Wall Street valuations will go way up when they adjust their commodity price decks to reality.

I have updated my forecast/valuation model and my valuation increases by $8 to $172.00. < I could easily justify a higher price.

My forecast model will be posted to the EPG website later today.

Things to know about Concho:
> It is one of our Elite Eight and a pure play on the Permian Basin
> For a company of this size, it is extremely easy to forecast because (a) they provide accurate and detailed guidance and (b) it has 20% annual production growth locked in for many years.
> It has 20,000 low-risk high-return drilling locations. Some of the most valuable real estate on the planet.
> My valuation assumes $50 oil for all future periods
> Concho does not breakout NGL production, so my natural gas price may seem too high at first glance. It probably is too low since NGL prices are rising fast none of Concho's NGLs are hedged.
> Concho generates taxable income, so the GOP Tax Plan really improves their bottom line. This is the primary reason my valuation goes up $8 since the last newsletter.

Don't avoid the "Elite Eight" because they have high share prices. They are all "core holding" quality and these are the stocks the Wall Street Fund managers will pure a lot of money into as they rotate into the energy sector. Size matters in this business.

Why would we want to buy a particular energy stock today if we only expect about a 15% upside? Shouldn't you have a section for "holds," which is what I consider this stock to be at best? Frankly, if I owned it, and only expected another 15%, I would sell it for a better prospect.

Then that is exactly what you should do. But, before you do, download the Excel version of the forecast model and put $60 in for the oil price in 2018 and 2019.

The Elite Eight are "Blue Chip" companies. There are very few upstream companies that can match up with these companies. Wall Street fund managers, especially those who aren't experts on the oil & gas industry, will move money in to the well known blue chips before they put money into the smaller companies.

The Elite Eight deserve and trade at higher multiples, just like blue chip tech companies do.

Small-cap companies in all sectors have less analysts covering them and they can trade well below break-up value for a long time.

What you invest your money in is TOTALLY UP TO YOU. All I do is provide suggestions and the most accurate forecast models that I can.