Sweet 16 Update - July 7
Posted: Fri Jul 06, 2018 5:24 pm
I spent Friday afternoon checking all of the Sweet 16 individual forecast/valuation models and comparing them to what First Call currently expects EPS to be for Q2 and Q3. Let me say first that if oil and gas prices hold anywhere close to where they are today, the Q3 EPS that First Call is showing for this quarter will be going a lot higher. Their estimates are clearly based on lower commodity prices .
All of my EPS and CFPS forecasts for Q2 sit between the low and high estimates that have been submitted to First Call. So... I'm not "way out there" on any of my forecasts.
I now expect at least three of the Sweet 16 to report Q2 Adjusted Earnings Per Share that are higher than what is in my latest forecast.
1. Earthstone Energy (ESTE), the newest member of the Sweet 16. It is now up 11.8% since being added to the Sweet 16 on 5-26-2018.
2. PDC Energy (PDCE)
3. Range Resources (RRC)
Four companies are trading below book value. There is no justification for any profitable upstream company trading below book value unless you believe commodity prices are going to drop off of a cliff. This is because SEC accounting rules require upstream oil & gas companies to "mark-to-market" their assets at the end of each quarter. It is even more insane in a time of rising commodity prices. Here they are:
1. Antero Resources (AR): AR is up 14.95% YTD, but it is still trading way below my valuation of $30.00/share. It reported $1.95 EPS in 2017, it will be profitable this year and 100% of their forecast natural gas production for 2018 and 2019 is hedged at $3.50/MMBtu.
2. Earthstone Energy (ESTE): Come to our Houston luncheon on July 16th and I think you will see why I believe this stock will double for us within twelve months.
3. Gulfport Energy (GPOR): It reported $2.38 EPS in 2017, it will be profitable this year and it has 20% YOY production growth locked in. GPOR has the lowest PE ratio in the S-16.
4. Range Resources (RRC): It reported $1.36 EPS in 2017, it will be profitable this year and it holds over a million acres of leasehold in the Marcellus/Utica play, arguably the most valuable natural gas and NGL leasehold on the planet.
The Sweet 16 is now up 2.08% YTD, +1.63% in the week ending July 6, 2018. This is nothing to brag about, but at least we are now back in positive territory.
It is trading 52.5% below my valuation, which is based on $65/bbl WTI for all future periods, $2.75/MMBtu HH natural gas for 2018 and $2.50/MMBtu HH natural gas for 2019.
The big stock price moves come in the "Rebound Phase" when the Wall Street Gang revalues the companies using higher oil & gas prices. This has started to happen, but the Permian Basin "pipeline takeaway capacity" issue has added a new FEAR the Wall Street Gang must deal with, not to mention the "Trump Tweets" issue.
My expectation is that the Sweet 16 companies all report solid Q2 results and clearly address the Permian transportation issue. A few rigs will be moved out of the basin and some companies may push back some well completions, but I will be stunned if it causes a lot of oil to be stranded in West Texas. Texas has a lot of trucks that can haul oil.
The big winners could be the Eagle Ford and SCOOP/STACK companies which may be selling their oil at a premium to WTI. I know some Eagle Ford companies are already getting a nice premium to WTI prices (CRZO, LONE and SN). CLR, NFX and XEC are my top picks in the Central Oklahoma SCOOP/STACK. As I posted here earlier this week, XEC looks like a Screaming Buy at the current share price. My valuation is $170.
All of my EPS and CFPS forecasts for Q2 sit between the low and high estimates that have been submitted to First Call. So... I'm not "way out there" on any of my forecasts.
I now expect at least three of the Sweet 16 to report Q2 Adjusted Earnings Per Share that are higher than what is in my latest forecast.
1. Earthstone Energy (ESTE), the newest member of the Sweet 16. It is now up 11.8% since being added to the Sweet 16 on 5-26-2018.
2. PDC Energy (PDCE)
3. Range Resources (RRC)
Four companies are trading below book value. There is no justification for any profitable upstream company trading below book value unless you believe commodity prices are going to drop off of a cliff. This is because SEC accounting rules require upstream oil & gas companies to "mark-to-market" their assets at the end of each quarter. It is even more insane in a time of rising commodity prices. Here they are:
1. Antero Resources (AR): AR is up 14.95% YTD, but it is still trading way below my valuation of $30.00/share. It reported $1.95 EPS in 2017, it will be profitable this year and 100% of their forecast natural gas production for 2018 and 2019 is hedged at $3.50/MMBtu.
2. Earthstone Energy (ESTE): Come to our Houston luncheon on July 16th and I think you will see why I believe this stock will double for us within twelve months.
3. Gulfport Energy (GPOR): It reported $2.38 EPS in 2017, it will be profitable this year and it has 20% YOY production growth locked in. GPOR has the lowest PE ratio in the S-16.
4. Range Resources (RRC): It reported $1.36 EPS in 2017, it will be profitable this year and it holds over a million acres of leasehold in the Marcellus/Utica play, arguably the most valuable natural gas and NGL leasehold on the planet.
The Sweet 16 is now up 2.08% YTD, +1.63% in the week ending July 6, 2018. This is nothing to brag about, but at least we are now back in positive territory.
It is trading 52.5% below my valuation, which is based on $65/bbl WTI for all future periods, $2.75/MMBtu HH natural gas for 2018 and $2.50/MMBtu HH natural gas for 2019.
The big stock price moves come in the "Rebound Phase" when the Wall Street Gang revalues the companies using higher oil & gas prices. This has started to happen, but the Permian Basin "pipeline takeaway capacity" issue has added a new FEAR the Wall Street Gang must deal with, not to mention the "Trump Tweets" issue.
My expectation is that the Sweet 16 companies all report solid Q2 results and clearly address the Permian transportation issue. A few rigs will be moved out of the basin and some companies may push back some well completions, but I will be stunned if it causes a lot of oil to be stranded in West Texas. Texas has a lot of trucks that can haul oil.
The big winners could be the Eagle Ford and SCOOP/STACK companies which may be selling their oil at a premium to WTI. I know some Eagle Ford companies are already getting a nice premium to WTI prices (CRZO, LONE and SN). CLR, NFX and XEC are my top picks in the Central Oklahoma SCOOP/STACK. As I posted here earlier this week, XEC looks like a Screaming Buy at the current share price. My valuation is $170.