SilverBow Resources (SBOW) Valuation Update - Aug 5
Posted: Sat Aug 05, 2023 8:57 am
SBOW closed on Aug 4 at $37.01
I have updated my forecast/valuation model for their Q2 results that beat my forecast and their fresh guidance.
I am increasing my current valuation by $5 to $68/share.
Only two analysts cover SBOW and neither one has updated their price targets, which were $41 and $45 before the company's outstanding Q2 results.
Why is my valuation so high?
> SilverBow has a low number of shares outstanding, so small changes in my model assumptions have a big impact on my valuation.
> Q2 oil production beat my forecast and it looks like they are on pace to beat the high end of their 2023 production estimate. Both of their operated rigs are drilling for oil and they will be completing a lot of high rate oil wells over the next few months. Oil production should more than double, to a 2023 exit rate over 20,000 BOPD.
> They have a high percentage of this year's natural gas production hedged, so their realized gas price should be close to $3.40/mcf for the year.
> The Company is now free cash flow positive, which allows me to increase my valuation multiple from 3.0 to 3.25 X operating cash flow per share, which is still a very low multiple for a company of this quality.
> They have plenty of cash flow and liquidity to fund their aggressive growth plan. No near-term debt issues.
> Production growth was 26% YOY in 2022 and I now expect them to top that in 2023.
> Operating cash flow per share should be over $19 this year and I see no reason for SBOW to be trading for less than 2X CFPS. My 2024 forecast shows operating cash flow of $28.95/share, so a year from now my valuation will be over $100/share.
If you are long-term bullish on natural gas prices (as I am) then you need to own SBOW. This company has HUGE potential gas reserves in Webb County, Texas.
I have updated my forecast/valuation model for their Q2 results that beat my forecast and their fresh guidance.
I am increasing my current valuation by $5 to $68/share.
Only two analysts cover SBOW and neither one has updated their price targets, which were $41 and $45 before the company's outstanding Q2 results.
Why is my valuation so high?
> SilverBow has a low number of shares outstanding, so small changes in my model assumptions have a big impact on my valuation.
> Q2 oil production beat my forecast and it looks like they are on pace to beat the high end of their 2023 production estimate. Both of their operated rigs are drilling for oil and they will be completing a lot of high rate oil wells over the next few months. Oil production should more than double, to a 2023 exit rate over 20,000 BOPD.
> They have a high percentage of this year's natural gas production hedged, so their realized gas price should be close to $3.40/mcf for the year.
> The Company is now free cash flow positive, which allows me to increase my valuation multiple from 3.0 to 3.25 X operating cash flow per share, which is still a very low multiple for a company of this quality.
> They have plenty of cash flow and liquidity to fund their aggressive growth plan. No near-term debt issues.
> Production growth was 26% YOY in 2022 and I now expect them to top that in 2023.
> Operating cash flow per share should be over $19 this year and I see no reason for SBOW to be trading for less than 2X CFPS. My 2024 forecast shows operating cash flow of $28.95/share, so a year from now my valuation will be over $100/share.
If you are long-term bullish on natural gas prices (as I am) then you need to own SBOW. This company has HUGE potential gas reserves in Webb County, Texas.