Laredo Petroleum (LPI) Update from Stifel - May 7
Posted: Fri May 07, 2021 11:48 am
Laredo Petroleum, Inc. (LPI, $36.37, Buy; Target $68.00) -
Defending LPI, sell-off creates a buying opportunity given the de minimis impact on NAV - Derrick Whitfield, Stifel
In our view, LPI is oversold on fundamentals. Despite its positive Q121 results and guidance, the stock materially underperformed its closest peers yesterday based on weaker-than-expected well performance from its first Howard County well package, which was disclosed in its Q121 presentation. As shown in Figure 1, industry (OVV) is outperforming our type curve (in line with LPI) with offsetting wells spaced at 8 wells per section for the WC-A interval. Assuming the Street was modeling the most aggressive spacing previously communicated (16 wells per DSU), we estimate the impact of up-spacing to 12 wells per DSU in Howard County would decrease our NAV by $2.34/share (vs the $7.05/share decline yesterday). Net-net, while management hoped to start better out of the gate with its first well package, we believe the sell-off creates a buying opportunity for investors given the de minimis impact on our NAV.
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MY TAKE: Given that LPI had some well spacing problems in 2018 that still haunt them, I believe investors over-reacted to even a hint of problems. IMO LPI was grossly oversold on a day when the whole sector took a beating. There is nothing to justify LPI trading at barely over 1X operating cash flow per share. My current valuation is $54/share.
Defending LPI, sell-off creates a buying opportunity given the de minimis impact on NAV - Derrick Whitfield, Stifel
In our view, LPI is oversold on fundamentals. Despite its positive Q121 results and guidance, the stock materially underperformed its closest peers yesterday based on weaker-than-expected well performance from its first Howard County well package, which was disclosed in its Q121 presentation. As shown in Figure 1, industry (OVV) is outperforming our type curve (in line with LPI) with offsetting wells spaced at 8 wells per section for the WC-A interval. Assuming the Street was modeling the most aggressive spacing previously communicated (16 wells per DSU), we estimate the impact of up-spacing to 12 wells per DSU in Howard County would decrease our NAV by $2.34/share (vs the $7.05/share decline yesterday). Net-net, while management hoped to start better out of the gate with its first well package, we believe the sell-off creates a buying opportunity for investors given the de minimis impact on our NAV.
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MY TAKE: Given that LPI had some well spacing problems in 2018 that still haunt them, I believe investors over-reacted to even a hint of problems. IMO LPI was grossly oversold on a day when the whole sector took a beating. There is nothing to justify LPI trading at barely over 1X operating cash flow per share. My current valuation is $54/share.