Callon Petroleum (CPE) Valuation Update - Feb 23

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dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Callon Petroleum (CPE) Valuation Update - Feb 23

Post by dan_s »

CPE closed on Feb 22 at $34.80.

I have updated my forecast/valuation model for CPE and I have increased my valuation by $3 to 89/share.
> CPE reported strong Q4 2022 results. Production was slightly lower than my forecast because of weather conditions in December, but financial results were very close to my forecast.
> For the year 2022 they reported Net Income of $1,209.8 million, $19.63/share based on the shares outstanding on 12/31/2022.
> More importantly: adjusted operating cash flow of $1,578.4 million funded year-over-year production growth of 9.1% with free cash flow of $622.7 million.
> The balance sheet is in good shape and they should generate close to $1.5 billion of operating cash flow this year, more than enough to fund this year's drilling program.
> Production will be down a bit in Q1 to about 98,500 Boepd (weather and timing of well completions) and then surge higher in Q2 to ~105,750 Boepd. This year's exit rate is expected to be in the range of 110,000 to 112,000 Boepd.
> Production mix should be approximately 61.5% crude oil, 18.5% natural gas and 20% NGLs.
> Per my forecast, 2023 results should be Adjusted Net Income (without MTM adjustments on hedges) of $12 to $14 per share and operating cash flow should be $1.4 to $1.6 billion, which will cover their $1 billion drilling program.

There is nothing that I see which justifies this stock trading below 2X operating cash flow per share.

TipRanks: "In the last 3 months, 8 ranked analysts set 12-month price targets for CPE. The average price target among the analysts is $57.88. The 8 price targets range from $45 to $70."
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Re: Callon Petroleum (CPE) Valuation Update - Feb 23

Post by dan_s »

Note from Neal Dingmann at Truist Financial. His price target is $52.

Callon reported higher 4Q22 EBITDAX than Street estimates though lower than Truist
Securities/Street FCF, which was driven primarily by higher CAPEX than Truist Securities/
Street forecasts and higher than expected NGL production. 2023 guidance is largely as we
expected with CAPEX and production relatively sequentially flat as a similar maintenance
capital program as last year is anticipated. The company continues to focus on immediate
debt repayment and is close to its optimal debt <$1.5 billion and leverage <1.0x metrics;
enough so CPE plans to initiate its share repurchase program in 2H23
Dan Steffens
Energy Prospectus Group
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