FMV vs 12 Month Price Target

[KGardiner]

Hi Dan,
Looking through the Sweet 16 forum the past 2 weeks, I noticed that in some cases when you update the Fair Market Value (the stock's current worth based upon current earnings and commodity prices), you also provide a 12 Month Price Target.

Recent 12 month targets are:
AR $30
ESTE $22
EQT $50
OVV $80
PDCE $100
PXD $295
TALO $45

I expect that these targets are conservative, and that some companies such as Laredo and Cimarex cannot be given a 12 month target because of pending merger or acquisition results, but I was wondering if going forward you could provide such price targets when the FMV is updated, or state that things are too uncertain to make such a projection.

I can certainly use the forecast models to come up with a target, but I lack the company knowledge to know when a higher CFPS multiple is warranted 12 months out.

Thanks
Kevin

[dan_s]

Last week I updated my current valuations for each of the Sweet 16 companies. They all went up because I have recently updated the oil and natural gas prices used in all of my forecast models. Yes, the new commodity price forecasts do look conservative.
Today there is a lot of "headline risk" for oil prices, so I want to err on the side of being conservative, especially for oil prices.

That said, the 12-month price targets in your post are just my 2022 operating cash flow per share forecast X what I believe will be reasonable multiple for each company a year from now. For example, if Henry Hub natural gas prices average $3.25/MMBtu in 2022, Antero Resources (AR) operating CFPS will be somewhere in the $4.50 to $5.00 range. Plus, they will report a HUGE increase in the PV10 value of their P1 reserves and debt adjusted net asset value, so a valuation multiple in the 6 to 7 range will be justified.

So, for each of the Sweet 16 just take my 2022 operating cash flow per share forecast and multiply it by 8X for the "Elite Eight" (XEC, CLR, DVN, EOG, FANG, OVV, PDCE and PXD) and use 6X for the others. That would be a "ballpack" 12-month price target for each company assuming WTI averages $70/bbl and HH ngas averages $3.25/MMBtu in 2022.

If WTI does move firmly over $75/bbl in early August, I will update and increase my current valuations for most of the companies when I update the forecast models for Q2 actual results and fresh guidance.

In, the "Good Old Days" all of the Sweet 16 would be trading at more than 6X operating cash flow and some would deserve 10X.

[KGardiner]

Thanks Dan,
That makes a lot of sense.
Kevin