Laredo Petroleum (LPI) Valuation Update - Nov 6
Posted: Sun Nov 06, 2022 4:10 pm
LPI closed at $66.93 on November 4. This is a VERY HIGH BETA STOCK with a 52-week trading range of $51.23 to $120.86.
TipRanks: "In the last 3 months, 5 ranked analysts set 12-month price targets for LPI. The average price target among the analysts is $87.20. The five price targets (all updated 10/18 to 11/4) range from $71 to $127."
I have updated my forecast/valuation model based on their Q3 actual results (very good with adjusted operating cash flow of $189.8 million / $11.22 per share) and $51 million of free cash flow that they are using to payoff debt and buy back shares. My valuation is reduced by $6 to $117 per share.
LPI is a very interesting stock. The per share numbers are "stunning":
> They only had 16,915,000 shares of common stock outstanding at 9-30-2022 and they are continuing to buyback shares.
> 2021 Actual: Reported Net Income of $145.0 million ($8.49/share) and Adjusted Operating Cash Flow of $451.2 million ($26.42/share)
> First 9 months of 2022 Actual: Reported Net Income of $513.3 million ($30.34/share) and Adjusted Operating Cash Flow of $632.4 million ($37.39/share) < These strong results were done despite having to pay $423.7 million of cash settlements on this year's "Bad Hedges".
> Based on the Company's updated guidance: Q4 should generate another $153.2 million of operating cash flow ($9.06/share)
This stock is trading at 1.54 X 2022 operating cash flow per share.
So what's wrong here?
> LPI had 81,714 Boepd of production in 2021
> Production rose to 87,032 Boepd in Q2 2022, but declined to 79,613 Boepd in Q3 and the midpoint of their q4 quidance is 74,000 Boepd.
> Recent well results have been disappointing (the Leech pad)
> The Wall Street Gang needs more confidence that they can reverse the production decline.
> The good news is that most of their really "Bad Hedges" expire at 12-31-2022. 2023 revenues should increase even if production volumes don't bounce back.
> My 2023 forecast is based on production averaging 76,000 Boepd.
> If Laredo's production does ramp back up to where it was in Q2 2022 and oil prices stay over $90/bbl my valuation of $117 will be going higher.
TipRanks: "In the last 3 months, 5 ranked analysts set 12-month price targets for LPI. The average price target among the analysts is $87.20. The five price targets (all updated 10/18 to 11/4) range from $71 to $127."
I have updated my forecast/valuation model based on their Q3 actual results (very good with adjusted operating cash flow of $189.8 million / $11.22 per share) and $51 million of free cash flow that they are using to payoff debt and buy back shares. My valuation is reduced by $6 to $117 per share.
LPI is a very interesting stock. The per share numbers are "stunning":
> They only had 16,915,000 shares of common stock outstanding at 9-30-2022 and they are continuing to buyback shares.
> 2021 Actual: Reported Net Income of $145.0 million ($8.49/share) and Adjusted Operating Cash Flow of $451.2 million ($26.42/share)
> First 9 months of 2022 Actual: Reported Net Income of $513.3 million ($30.34/share) and Adjusted Operating Cash Flow of $632.4 million ($37.39/share) < These strong results were done despite having to pay $423.7 million of cash settlements on this year's "Bad Hedges".
> Based on the Company's updated guidance: Q4 should generate another $153.2 million of operating cash flow ($9.06/share)
This stock is trading at 1.54 X 2022 operating cash flow per share.
So what's wrong here?
> LPI had 81,714 Boepd of production in 2021
> Production rose to 87,032 Boepd in Q2 2022, but declined to 79,613 Boepd in Q3 and the midpoint of their q4 quidance is 74,000 Boepd.
> Recent well results have been disappointing (the Leech pad)
> The Wall Street Gang needs more confidence that they can reverse the production decline.
> The good news is that most of their really "Bad Hedges" expire at 12-31-2022. 2023 revenues should increase even if production volumes don't bounce back.
> My 2023 forecast is based on production averaging 76,000 Boepd.
> If Laredo's production does ramp back up to where it was in Q2 2022 and oil prices stay over $90/bbl my valuation of $117 will be going higher.