Laredo Petroleum (LPI) Update - Dec 8

[dan_s]

Laredo's December PowerPoint presentation (which you can view on their website) includes some bullish information and they are going to change the Company's name ("Vital Energy") in an effort to improve their image within the Wall Street Gang. I don't care about the name change, but the following information does increase the confidence that I have in my forecast model and my valuation of $117 per share. At the time of this post, LPI was trading at $51.80

Solid Fourth-Quarter ‘22 Execution < Beat guidances, but down from Q3 production of 79,613 Boepd
▪ 4Q-22 average daily oil production currently above high end of guidance range (32.0-34.0 MBO/d)
▪ 4Q-22 average daily total production currently above high end of guidance range (72.5-75.5 MBOE/d)
▪ 4Q-22 capital investments expected to be within guidance range ($135-$145 million)

With LPI it is always important to remember that it has a very low number of shares for the size of the company: just 16,915,000 as of 9-30-2022 and they have a stock repurchase plan underway.

Per share result for 2022 will be quite impressive:

> 2021 Actual Results: $8.49 EPS and $26.42 operating cash flow per share.

> 2022 Estimates per my forecast: $34.57 EPS and $46.55 operating cash flow per share.
> 2022 Estimates per TipRanks: $34.64 EPS and $48.09 operating cash flow per share. < Average of 5 energy sector analysts

Here are the forecasts for 2023.
My forecast is based on LPI getting realized prices net of cash settlements on hedges of $82/bbl oil, $3.25/mcf ngas & $25/bbl NGLs
> 2023 Estimates per my forecast: $25.28 EPS and $47.31 operating cash flow per share
> 2023 Estimates per TipRanks: $32.10 EPS and $55.50 operating cash flow per share

TipRanks: "In the last 3 months, 5 ranked analysts set 12-month price targets for LPI. The average price target among the analysts is $85.60."
JP Morgan 12/5/2022 $69.00
Piper Sandler 11/17/2022 $72.00
Siebert Williams S 11/4/2022 $85.00
Stifel Nicolaus 10/31/2022 $127.00
Raymond James 10/24/2022 $75.00

LPI is free cash flow positive (over $210 million in 2022), the balance sheet is in good shape, and they have plenty of "running room".

They reported some disappointing well result in Q3, but say they've fixed the problem. If well results improve and production growth returns (fully funded by operating cash flow) in 2023, this stock has a lot of upside potential. It definitely deserves to trade for more than 2X operating cash flow per share.

[dan_s]

I have posted my updated forecast/valuation model for LPI to the EPG website home page.