Sweet 16 Update - August 25
Posted: Fri Aug 24, 2018 5:52 pm
I am posting this late on Friday because I will be tied up all day on Saturday working on the newsletter.
The Sweet 16 move 4.17% higher during the week ending August 25, but it is still down 2.42% YTD.
Why?
> Cimarex Energy (XEC) is down 31.24% YTD which is puzzling because it is a very conservative company with a strong balance sheet and it is very profitable. The stock closed at $83.90 on Friday. First Call's price target is $122.48. Since the company released Q2 results and revised their guidance, four analysts have updated their forecasts/valuations and submitted them to Reuters. Their valuations are $100, $110, $129 and $175. Two of them did rate it a HOLD. The only justification that I can see is that Cimarex is "gassy". Their production mix in the 2nd quarter was 42.5% natural gas, 28.3% NGLs and 29.2% crude oil. Permian Basin gas prices are very low and may remain depressed for several quarters due to the limited pipeline capacity in West Texas. I have figured the low gas prices and big price differentials for oil into my forecast/valuation model and still come up with a valuation of $150/share. The Ward County sale to Callon Petroleum (CPE) shores up their already strong balance sheet and the production that was sold is baked into their production guidance of 13% to 15% YOY production growth.
> Concho Resources (CXO) and Diamondback Energy (FANG) are now down YTD 8.14% and 3.56% because of the mergers with RSPP and Energen. I really like both deals and think that when the smoke clears the market will see two "Powerhouse" companies heading into 2019. Big acquisitions/mergers like this always seem to cause the Buyer's share price to pull back just because of the confusion created during the transition period. Since both target companies "fit like a glove", they should be absorbed easily.
Continental Resources (CLR) is the only company up big so far. It is up 23.65% YTD because (a) none their oil is hedged and (b) they are kicking ass in SCOOP/STACK and the Bakken.
Despite the vastly improved outlook for natural gas prices, all three of our gassers (AR, GPOR and RRC) are down YTD. I expect them to draw more attention after Labor Day. I feel fairly certain Mother Nature still has winter heating season planned for the U.S. BTW all three companies have no exposure to the West Texas pipeline takeaway capacity issues. They are getting good prices for their gas and NGLs. Updated profiles and forecasts models for all three are now on our website.
The Sweet 16 move 4.17% higher during the week ending August 25, but it is still down 2.42% YTD.
Why?
> Cimarex Energy (XEC) is down 31.24% YTD which is puzzling because it is a very conservative company with a strong balance sheet and it is very profitable. The stock closed at $83.90 on Friday. First Call's price target is $122.48. Since the company released Q2 results and revised their guidance, four analysts have updated their forecasts/valuations and submitted them to Reuters. Their valuations are $100, $110, $129 and $175. Two of them did rate it a HOLD. The only justification that I can see is that Cimarex is "gassy". Their production mix in the 2nd quarter was 42.5% natural gas, 28.3% NGLs and 29.2% crude oil. Permian Basin gas prices are very low and may remain depressed for several quarters due to the limited pipeline capacity in West Texas. I have figured the low gas prices and big price differentials for oil into my forecast/valuation model and still come up with a valuation of $150/share. The Ward County sale to Callon Petroleum (CPE) shores up their already strong balance sheet and the production that was sold is baked into their production guidance of 13% to 15% YOY production growth.
> Concho Resources (CXO) and Diamondback Energy (FANG) are now down YTD 8.14% and 3.56% because of the mergers with RSPP and Energen. I really like both deals and think that when the smoke clears the market will see two "Powerhouse" companies heading into 2019. Big acquisitions/mergers like this always seem to cause the Buyer's share price to pull back just because of the confusion created during the transition period. Since both target companies "fit like a glove", they should be absorbed easily.
Continental Resources (CLR) is the only company up big so far. It is up 23.65% YTD because (a) none their oil is hedged and (b) they are kicking ass in SCOOP/STACK and the Bakken.
Despite the vastly improved outlook for natural gas prices, all three of our gassers (AR, GPOR and RRC) are down YTD. I expect them to draw more attention after Labor Day. I feel fairly certain Mother Nature still has winter heating season planned for the U.S. BTW all three companies have no exposure to the West Texas pipeline takeaway capacity issues. They are getting good prices for their gas and NGLs. Updated profiles and forecasts models for all three are now on our website.