Baytex Energy (BTE) Valuation Update - Nov 1

[dan_s]

Notes below are from TipRanks with my comments in blue.

In a report released yesterday (10/31) after the company released Q3 results, Gregory Pardy from RBC Capital maintained a Buy rating on Baytex Energy (BTE.TO), with a price target of C$5.50. The company’s shares closed on November 1 at $4.09Cdn. < Baytex is a profitable company that is generating over $600Cdn million of free cash flow in 2024. It pays dividends and it has an active stock buyback program. There is no reason this stock should be trading below its book value of ~5.00Cdn/share.

Pardy covers the Energy sector, focusing on stocks such as Suncor Energy, Baytex Energy, and Cenovus Energy. According to TipRanks, Pardy has an average return of 20.7% and a 59.51% success rate on recommended stocks.
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Analyst Jeremy Mccrea of BMO Capital (rated 5 Stars by TipRanks) maintained a Hold rating on Baytex Energy (BTE), with a price target of C$6.00. < The HOLD rating makes no sense since his price target is 2X the current share price.

Jeremy Mccrea has given his Hold rating due to a combination of factors including the promising performance of Baytex Energy’s assets in key regions such as Clearwater and Duvernay. These areas have shown robust well results, indicating significant potential upside. However, the company’s growth rate, which is currently between 1-4% annually, is lower than desired, although Baytex’s management has been effective in balancing debt reduction with shareholder returns.
Moreover, the company’s recent quarterly results exceeded expectations, with operational improvements and strong initial results from the Duvernay wells. Despite these positive indicators, the overall growth potential remains modest, which justifies the Hold rating. The company’s guidance for 2024 remains consistent with previous expectations, reflecting a stable but cautious outlook.

[dan_s]

I have updated my forecast/valuation model for Baytex's solid Q3 results and fresh guidance.

Baytex closed the acquisition of Ranger Oil on June 20, 2023. Ranger Oil was one of my Top Picks in the 2023 Sweet 16. Baytex's Q3 2023 (the first full quarter of combined results) production was 150,601 Boepd. Yesterday Baytex announced Q3 2024 production of 154,468 Boepd, so only modest production growth since the acquisition.

Despite flat production, Baytex is on pace to generate $1.9Cdn Billion of operating cash flow and over $600Cdn million of free cash flow in 2024.

From Q1 2024 total production is up just 2.55%, but their Light Oil & Condensate production, which sold for $100.78Cdn/bbl in Q3 2024 is up 5.77% since the first quarter. I expect their production mix to continue to get more oily.

TipRanks' consensus forecast for 2025 is slightly higher than my forecast:
In Canadian dollars;
Net Income per share of $0.50Cdn and Operating Cash Flow per share of $2.39Cdn. My forecast is $0.35 EPS and $2.28 CFPS.

At the time of this post BTE.TO was trading at $4.06Cdn. < There is nothing that I see which justifies a share price of less than 2X operating CFPS.

My valuation of BTE increases by $0.25 to $5.75US per share ($7.78Cdn per share).

[mtnhiker]

In your first message the 2.83 is US dollars. CDN is $4.09.

[dan_s]

Thanks. I corrected to first post.