Callon Petroleum (CPE) Valuation Update - May 6

[dan_s]

CPE closed today at $39.59.

I have updated my forecast/valuation model for CEP and it should be posted to the EPG webiste.

My valuation increase by $6 to $63 per share, primarily because 2020 results are dropped from my valuation formula.
> Q1 production came in below my forecast because of winter storm Uri. Production has snap back in Q2 to ~90,000 Boepd.
> The Company's full year guidance was lowered 1,000 Boepd to a midpoint of 90,000 Boepd.
> In Q1 higher realized ngas prices and NGL prices more than offset the production miss. Realized gas prices were up 37% and NGL prices up 43% Q over Q.
> My valuation is just 3.5 X 2021 - 2022 operating cash flow per share, which is a low multiple for a company that is generating solid FCF from operations.
> The only negative is that Callon does have some "Bad Oil Hedges" that need to be worked off this year.
> If WTI averages $65/bbl in 2022, Callon will generate over $19/share of operating cash flow per share and CPE should be trading for at least 4X CFPS.

As I have posted here before, there are a few of the Wall Street Gang that still don't like the Callon + Carrizo merger. The "Gang" tends to put some stocks in the "Penalty Box" longer than they deserve and IMO that is what's happening here.