Energy Prospectus

Saturday, Feb 27 podcast is a brief update on oil & gas prices, then I focus on the Sweet 16.

Wall Street Gang is rotating money into the Energy Sector
> Sweet 16 gained 8.24% last week and is up 48.82% YTD
> Compare to the S&P 500 Index that is up just 1.47% YTD

14 of the 16 have reported Q4 results and detailed guidance for 2021
> All 16 of the individual forecast/valuation models have been updated for higher commodity prices, Q4 2020 actual results and 2021 guidance provided by each company.
> Earthstone Energy (ESTE) and Talos Energy (TALO) are the only two S-16 that have not yet reported Q4 2020 results.

My common stock valuations are based on Operating CFPS
> My stock valuation formula is (2020 CFPS + (2 x 2021 CFPS) + 2022 CFPS) / 4 X Multiple of CFPS
> The Multiple of CFPS is what I believe to be a “reasonable” Fair Market Value or what the company would sell for in a negotiated transaction.
> As a group, the Sweet-16 is trading at just 3.1 X my 2021 CFPS forecast. "Going Concerns" of this quality, with lots of running room deserve higher multiples.
> Four companies are still trading below Book Value. SEC accounting rules for upstream companies are extremely conservative, so none of them should trade below book value.
> All 16 are generating Free Cash Flow from operations, which means their 2021 capital / growth plans are completely self-funded.
> No significant increase in D&C spending is anticipated (so far)

In the Sweet 16 spreadsheet that I discuss in the podcast, the First Call Target Prices shown on Tab 2 had not been updated. They are from February 19. Download the Sweet 16 spreadsheet from the EPG website to see what they are now.

First Call target prices are always outdated because it takes Reuters at least a month after companies release quarter results to get all of the new price target forecasts updated in their database. It takes even longer after Q4 because most companies provide line by line guidance for the new year. First Call target prices are just the average of all the price targets that have been submitted to Reuters. In the lower right hand corner of each individual company forecast/valuation model I show a few fresh price targets from respected energy sector analysts. The spreads between price targets are still large because some firms are still basing them on $50/bbl oil.

Talos Energy (TALO) will release Q4 2020 results on March 10 and I expect Earthstone Energy (ESTE) to release results on March 11.