Sweet 16 Update - October 18
Posted: Sat Oct 18, 2014 10:58 pm
The Sweet 16 Growth Portfolio spreadsheet has been updated and posted to the website:
> Tab 1 of the spreadsheet is a summary of the EPS and CFPS forecasts,
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 10-18-2014
I have updated all of the individual company forecast models, lowering the realized oil prices for Q4 and 2015 assuming $80/bbl for WTI. Adjustments are made for regional price differentials and each company's hedges. All of the Sweet have some of their oil hedged at higher prices.
"Reported Earnings" for the 3rd quarter for all 16 companies should beat the current First Call forecasts because each company will report a large mark-to-market adjustment on their hedges. Adjusted earnings should be close to First Call EPS estimates except for GPOR, SN and SM.
Gulfport Energy (GPOR) has reported 3rd quarter production above my forecast, but it was more natural gas than I was expecting. If they increase their proven reserves the DD&A rate could be lower than my forecast, so Adjusted Earnings could be closer to the First Call estimate for EPS than what my model show. However, most companies do not adjust their DD&A rate until year-end. Regardless, GPOR is on-track to report close to a 240% year-over-year increase in production in 2014 and production should double again in 2015. First Call's 12-month target price is $71.00, which is reasonable. Keep an eye on what Grizzly is doing up in Canada.
Sanchez Energy (SN) will be reporting the first full quarter after the big acquisition from Shell. They may surprise us, but I am being conservative in my forecast. Remember to focus on cash flow, not earnings.
SM Energy (SM) will have a good quarter, but they had some weather related issues that may cause the earnings miss.
Hang tough. This group is all trading way below fair value (unless you think oil is going a lot lower).
> Tab 1 of the spreadsheet is a summary of the EPS and CFPS forecasts,
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 10-18-2014
I have updated all of the individual company forecast models, lowering the realized oil prices for Q4 and 2015 assuming $80/bbl for WTI. Adjustments are made for regional price differentials and each company's hedges. All of the Sweet have some of their oil hedged at higher prices.
"Reported Earnings" for the 3rd quarter for all 16 companies should beat the current First Call forecasts because each company will report a large mark-to-market adjustment on their hedges. Adjusted earnings should be close to First Call EPS estimates except for GPOR, SN and SM.
Gulfport Energy (GPOR) has reported 3rd quarter production above my forecast, but it was more natural gas than I was expecting. If they increase their proven reserves the DD&A rate could be lower than my forecast, so Adjusted Earnings could be closer to the First Call estimate for EPS than what my model show. However, most companies do not adjust their DD&A rate until year-end. Regardless, GPOR is on-track to report close to a 240% year-over-year increase in production in 2014 and production should double again in 2015. First Call's 12-month target price is $71.00, which is reasonable. Keep an eye on what Grizzly is doing up in Canada.
Sanchez Energy (SN) will be reporting the first full quarter after the big acquisition from Shell. They may surprise us, but I am being conservative in my forecast. Remember to focus on cash flow, not earnings.
SM Energy (SM) will have a good quarter, but they had some weather related issues that may cause the earnings miss.
Hang tough. This group is all trading way below fair value (unless you think oil is going a lot lower).