Energy Prospectus

From our friends at Stifel

Matador Resources Company (MTDR, $50.59, Buy; Target $89.00)
Raising 2022 CFPS Estimate Following 1Q Beat - Michael S. Scialla

We view the release as positive. The positives include: i) 1Q22 CFPS beat on production and price; ii) 1Q22 FCF was 39% above consensus; iii) in early 2Q22, the company paid off its revolving credit facility, where the borrowing base was expanded 48% to $2.0B; iv) 2 wells completed in the Ranger area are tracking ~24% above our oil type curve after 11 months. The negatives include: i) 2Q22 capex guidance was 13% above consensus due to timing although 2022 capex guidance remained unchanged. Despite inflationary pressure, margin expansion exceeded expectations while production beat. While 2022 guidance remained largely unchanged, we are raising our 2022 CFPS estimate 23% to reflect better-than-expected price realizations.

I will be update my forecast/valuation model for MTDR this afternoon.

I liked their report. If you have to have hedges , I like what they have done. Rather than willy nilly writing a huge bunch all at once, they have layered in 3 way collars with a wide spread. They actually had a gain from hedges in q1 and will have upside participation.

They have oil hedges as high as 138
They have NG hedges as high as 14


Refer to slide 18 of slide deck

I opened a small position in the name today

BTW, the name was $ 50 on March 1st. You can establish a position today, almost 2 months later at that price. it was $59.27 just a week ago. The recent selling has been over done, imho.

At the time of this post MTDR was trading at $49.93. I have increased by valuation by $4 to $86.00 per share.

My valuation is only 5.5X annualized operating cash flow per share, which is a low multiple for a company of this size. I justify it because it is difficult to estimate their realized natural gas price ($7.43/mcf in Q2) because they report gas and NGLs on a combined basis.

Their hedge book is in good shape. They now use collars which have high ceilings; $110/bbl for oil. Paying down debt gives companies more flexibility on how much and at what price they hedge.

Matador is an "Aggressive Growth" company that has been increasing production by double digits each year ever since I started covering it. Up until last year it was outspending operating cash flow to build a solid base of production and proven reserves. Their production is now firmly over 100,000 Boepd (~57% crude oil) and they should easily generate over $1.2 billion of free cash flow this year. If they keep paying down debt and buying back shares with FCF, it will justify a much higher valuation by year-end.

Their guidance is for a significant increase in production from Q1 to Q2, so now is a good time to add this one to your portfolio.

Gabriele Sorbara at Siebert Williams Shank & Co just updated his price target to $88.00 and he rates it a BUY.