Concho Resources (CXO) Update - Oct 5
Posted: Fri Oct 05, 2018 1:50 pm
Concho closed the merger with RSP Permian on July 19th. Q3 results will be close enough to a full quarter of combined results to show the market what a great deal it was.
I made a few minor changes to my forecast/valuation model, but my valuation stays at $184/share for now. There is a lot more upside for CXO, especially if WTI moves firmly into Phase 5.
Concho is fairly well insulated from the Permian Basin takeaway capacity issue. All of their production will get to market under firm contracts with major pipeline companies.
The first time I looked at CXO was in 2009 when the stock price was under $18/share. Today it is trading at $158/share. This is what can happen when you stick with a GROWTH company that has a strong management team and access to growth capital.
CXO should generate more than $100 million of free cash flow in Q4 and over $200 million per quarter in 2019 despite the depressed oil price in West Texas. Within twelve months the takeaway capacity issues will be solved in West Texas and Concho will have incredible revenue growth locked in. They have over a decade of Tier One drilling inventory and their engineers are getting some of the best well results in the Permian Basin.
Here are the current First Call operating cash flow per share estimates. I think they will be raised.
2016A = $9.86 CFPS
2017A = $11.51
2018E = $14.84
2019E = $18.80 < Based on $65/WTI
2020E = $26.44
2021E = $30.31
My updated forecast/valuation model will be posted to the EPG website late today.
I made a few minor changes to my forecast/valuation model, but my valuation stays at $184/share for now. There is a lot more upside for CXO, especially if WTI moves firmly into Phase 5.
Concho is fairly well insulated from the Permian Basin takeaway capacity issue. All of their production will get to market under firm contracts with major pipeline companies.
The first time I looked at CXO was in 2009 when the stock price was under $18/share. Today it is trading at $158/share. This is what can happen when you stick with a GROWTH company that has a strong management team and access to growth capital.
CXO should generate more than $100 million of free cash flow in Q4 and over $200 million per quarter in 2019 despite the depressed oil price in West Texas. Within twelve months the takeaway capacity issues will be solved in West Texas and Concho will have incredible revenue growth locked in. They have over a decade of Tier One drilling inventory and their engineers are getting some of the best well results in the Permian Basin.
Here are the current First Call operating cash flow per share estimates. I think they will be raised.
2016A = $9.86 CFPS
2017A = $11.51
2018E = $14.84
2019E = $18.80 < Based on $65/WTI
2020E = $26.44
2021E = $30.31
My updated forecast/valuation model will be posted to the EPG website late today.