Sweet 16 Update - October 12
Posted: Sun Oct 12, 2014 2:45 pm
The Sweet 16 Growth Portfolio spreadsheet has been updated and posted under the Sweet 16 Tab:
> Tab 1 of the spreadsheet is a summary of the individual company EPS and CFPS forecasts,
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 10-12-2014
I have now updated all 16 of the individual company forecast models to assume $85 WTI oil price and $3.50 natural gas price for all of 2015. It is very important to note that I have attempted to estimate the impact of regional differentials and hedges for each company. You can download the individual company forecast models. Just click on the company's logo and download it to Excel. Each forecast model is driven by macros, so if you change the oil, gas and NGL prices at the bottom of the model the earnings and cash flows adjust automatically (its magic!).
I believe these stocks are now grossly oversold, but they could go lower just because there is a lot of FEAR out there.
The Sweet 16 is now trading 70% below my adjusted Fair Value Estimate for the group. I believe investors are not taking the time to see the impact of lower oil prices on these individual companies. All of them have some hedges in place. All of them sell some gas and NGLs, which have not fallen in price like oil. Natural gas is actually firming up heading into winter. RRC, UNT, SM, XEC, DVN, EOG, GPOR and NFX all have significant gas production.
Here is what is needed for this group to move higher:
1. We need to see some stability in the oil price. Brent is trading just above a very strong support level. It would be nice to see it hold around $90.
2. We need to see actual 3rd quarter results. NFX, RRC, SM and WLL are all expected to report Q3 results the last week of October. The rest of them will report the first week of November.
3. All of the companies should report solid Q3 results and "reported earnings" will include huge gains on derivatives, so they will be above First Call's EPS forecasts. Remember to focus on "Adjusted Earnings" and even more on "Cash Flows Per Share". I am expecting all 16 companies to report adjusted earnings per share very close to the current First Call EPS estimates.
After you look at the forecasts, if you have any questions just post them here and I will try to answer.
FEAR and GREED drive the market. FEAR is now in control, but there are bargain hunters waiting to jump in.
I urge all of you to take a look at the "Hedging Update" that Newfield put on their website (http://www.newfield.com/assets/pdf/@NFX_2014-10-06.pdf). It will help you understand how hedging reduces each companies exposure to sudden dips in oil & gas prices.
> Tab 1 of the spreadsheet is a summary of the individual company EPS and CFPS forecasts,
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 10-12-2014
I have now updated all 16 of the individual company forecast models to assume $85 WTI oil price and $3.50 natural gas price for all of 2015. It is very important to note that I have attempted to estimate the impact of regional differentials and hedges for each company. You can download the individual company forecast models. Just click on the company's logo and download it to Excel. Each forecast model is driven by macros, so if you change the oil, gas and NGL prices at the bottom of the model the earnings and cash flows adjust automatically (its magic!).
I believe these stocks are now grossly oversold, but they could go lower just because there is a lot of FEAR out there.
The Sweet 16 is now trading 70% below my adjusted Fair Value Estimate for the group. I believe investors are not taking the time to see the impact of lower oil prices on these individual companies. All of them have some hedges in place. All of them sell some gas and NGLs, which have not fallen in price like oil. Natural gas is actually firming up heading into winter. RRC, UNT, SM, XEC, DVN, EOG, GPOR and NFX all have significant gas production.
Here is what is needed for this group to move higher:
1. We need to see some stability in the oil price. Brent is trading just above a very strong support level. It would be nice to see it hold around $90.
2. We need to see actual 3rd quarter results. NFX, RRC, SM and WLL are all expected to report Q3 results the last week of October. The rest of them will report the first week of November.
3. All of the companies should report solid Q3 results and "reported earnings" will include huge gains on derivatives, so they will be above First Call's EPS forecasts. Remember to focus on "Adjusted Earnings" and even more on "Cash Flows Per Share". I am expecting all 16 companies to report adjusted earnings per share very close to the current First Call EPS estimates.
After you look at the forecasts, if you have any questions just post them here and I will try to answer.
FEAR and GREED drive the market. FEAR is now in control, but there are bargain hunters waiting to jump in.
I urge all of you to take a look at the "Hedging Update" that Newfield put on their website (http://www.newfield.com/assets/pdf/@NFX_2014-10-06.pdf). It will help you understand how hedging reduces each companies exposure to sudden dips in oil & gas prices.