Callon Petroleum (CPE) Valuation Update - June 6
Posted: Mon Jun 06, 2022 9:40 am
At the time of this post CPE was trading for $58.33.
TipRanks: "On June 2, 2022 Stifel Nicolaus analyst Derrick Whitfield maintained a Buy rating on Callon (CPE) and increased his price target by $4.00 to $140.00."
Since May 5, 2022 four energy sector analyst have submitted updated price targets to TipRanks. Their price targets range from $75.00 to $144.00.
I have updated my Callon forecast/valuation model for my new oil & gas price deck, which I highlighted in Saturday's podcast. The higher commodity prices increase my current valuation of CPE by $5 to $125.00 per share.
> The Company is now on pace to generate $1.2 billion of free cash flow from operations this year. FCF was $183.3 million in Q1.
> Callon's production was 102,655 Boe/d (63% oil) in the first quarter of 2022
> Based on their guidance, production should be up 6% to 10% year-over-year in 2022. I expect production to reach the high end of that range (105,000 Boepd) because recent well results have exceeded pre-drill type curves.
> Key Stat: "We are pleased with the rapid transformation of our balance sheet that has been the product of disciplined capital allocation and leading cash margins. Our leverage ratio was below 2.0x at the end of the first quarter and we expect that metric to approach 1.0x by year-end 2022 providing improved optionality for capital allocation, including a program of capital returns that accompany further debt reduction and re-investment in a deep inventory of low-breakeven projects." - Joe Gatto, CEO 5-4-2022
My operating cash flow forecast for 2022 is $1,923.8 million ($31.28/share), which compares to TipRank's operating CFPS estimate of $27.17.
There is NOTHING that I can see which justifies CPE trading below 2X CFPS.
My valuation of $125/share is based on just 4.5X annualized CFPS. If 2022 actual results match my forecast model and the balance sheet leverage ratio is 1.0X at year-end, CPE should deserve a valuation of 6X CFPS (~$185/share).
TipRanks: "On June 2, 2022 Stifel Nicolaus analyst Derrick Whitfield maintained a Buy rating on Callon (CPE) and increased his price target by $4.00 to $140.00."
Since May 5, 2022 four energy sector analyst have submitted updated price targets to TipRanks. Their price targets range from $75.00 to $144.00.
I have updated my Callon forecast/valuation model for my new oil & gas price deck, which I highlighted in Saturday's podcast. The higher commodity prices increase my current valuation of CPE by $5 to $125.00 per share.
> The Company is now on pace to generate $1.2 billion of free cash flow from operations this year. FCF was $183.3 million in Q1.
> Callon's production was 102,655 Boe/d (63% oil) in the first quarter of 2022
> Based on their guidance, production should be up 6% to 10% year-over-year in 2022. I expect production to reach the high end of that range (105,000 Boepd) because recent well results have exceeded pre-drill type curves.
> Key Stat: "We are pleased with the rapid transformation of our balance sheet that has been the product of disciplined capital allocation and leading cash margins. Our leverage ratio was below 2.0x at the end of the first quarter and we expect that metric to approach 1.0x by year-end 2022 providing improved optionality for capital allocation, including a program of capital returns that accompany further debt reduction and re-investment in a deep inventory of low-breakeven projects." - Joe Gatto, CEO 5-4-2022
My operating cash flow forecast for 2022 is $1,923.8 million ($31.28/share), which compares to TipRank's operating CFPS estimate of $27.17.
There is NOTHING that I can see which justifies CPE trading below 2X CFPS.
My valuation of $125/share is based on just 4.5X annualized CFPS. If 2022 actual results match my forecast model and the balance sheet leverage ratio is 1.0X at year-end, CPE should deserve a valuation of 6X CFPS (~$185/share).