PDC Energy (PDCE) Valuation Update - Feb 24

[dan_s]

PDCE was trading at $66.75 at the time of this post.
I have updated my forecast/valuation model and I am raising my valuation by $18 to $115, based on a very conservative multiple of 3.5X annualized operating cash flow per share.

PDC Energy is a classic "Growth + Income" stock with a super strong balance sheet.
They increased production by 4.6% in 2021 and another 19.2% in 2022, primarily due to the closing of the Great Western Acquisition on 5-6-2022. That extremely accretive acquisition combined with PDC's increased realized oil price going from $53.92/bbl in 2021 to $71.52/bbl in 2022, raised their operating cash flow from $921.6 million in 2021 to $2,538.4 million.

Based on the mid-point of PDC's 2023 production guidance (260,000 Boepd), they should generate over $2.5 billion of operating cash flow again this year despite their realized natural gas price likely to be $2.61/mcf, $0.98/mcf lower than their realized natural gas price in 2022. < Free Cash Flow should exceed $1Billion this year.

PDC has two core areas, the DJ Basin in Colorado and the Delaware Basin in West Texas and SE New Mexico. They will run four operated drilling rigs this year with the goal of increasing production ~12% YOY.

PDCE is in our High Yield Income Portfolio. Based on my forecast, their fixed + variable dividends should total $4.30 this year for annual yield of ~6.4%. They are also funding an aggressive stock buyback that will continue to improve per share results. I like the nice dividend, but it is the share price appreciation potential that makes me very bullish on this stock.