PDC Energy (PDCE) Update - May 4

[dan_s]

I have updated my forecast/valuation model for PDCE. It will be posted to the EPG website later today.

My valuation increases by $6.00/share to $90.00, which compares to First Call's price target of $68.00. Only 2 of the 13 analysts' reports submitted to Reuters that are used to arrive at the FC price target have been updated for Q1 actuals. The two new reports are both BUY recommendations with price targets of $79 and $89.

PDCE's Q1 results beat my forecast and I now think YOY production will be at or above the high end of the company's production guidance.

I have been following and modeling PDCE for over three years. Each quarter, I gain more confidence in the model.

The only thing that I can see keeping this stock down is that most of their production comes from the DJ Basin. Wall Street is not "keen" on companies that have most of their production in Colorado because investors keep seeing all of the crazy lawsuits filed in Colorado against oil & gas companies. The state of Colorado gets too much revenue from the oil & gas industry to act against this industry, but investors don't know that.

PDCE uses the "Successful Efforts" method of accounting, so quarterly net income flops all over the place. For SE companies you MUST IGNORE EPS and focus on operating cash flow per share.

Take a hard look at the RED BOX on the forecast model and you will see why PDCE is in our Sweet 16.