Sweet 16 Update - June 20
Posted: Sat Jun 20, 2015 11:34 am
The Sweet 16 pulled back 3.5% last week and is now up 11.9% year-to-date, compared to the S&P 500 Index that is up 2.5%.
West Texas Intermediate (WTI) has been trading in a rather tight range between $57.50 and $62.00 since the end of April.
See chart: https://www.tradingview.com/chart/wBMe44ta/
My guess is that WTI stays in this range for awhile until falling U.S. oil production is confirmed and/or demand forecasts go higher. In my opinion, EIA and IEA are grossly underestimating the increase in demand and they will make upward adjustments of several 100,000 barrels per day to their demand forecasts month after month. IEA increased their demand forecast for the first quarter by 300,000 BOPD in their June report. Demand for refined products will be spiking as we move through the 3rd quarter. Demand always increases in the second half of each year, as you can see on this chart: https://www.iea.org/oilmarketreport/omrpublic/
I have updated the Sweet 16 spreadsheet and posted it to the website. None of my valuations changed this week and there were only minor adjustments to First Call's Price Targets.
Laredo Petroleum (LPI) pulled back to just above where it was when I added it to the Sweet 16. This would be a good time to add it to your portfolio.
Bonanza Creek (BCEI) is now trading just above book value. I have a fairly high level of confidence in my forecast model for BCEI and I think their 2nd quarter revenues are going to come in quite a bit higher than the current First Call revenue forecast.
Sweet 16 that are trading below 5X my 2015 operating cash flow per share forecasts: BCEI, DVN, NFX, OAS, SM
You can view my CFPS forecast for each company in column T of the Sweet 16 spreadsheet (Tab 1)
There was an article from Zacks Equity Research that pointed out that SM Energy's (SM) revenues would be $25 million lower than their original forecast because of lower NGL prices. This is a prime example of how the market overreacts to stuff like this. SM's revenues will be over $2.1 Billion this year, so this news needs to be put in context. First Call's operating cash flow per share forecast for SM is very close to mine - $14.00/share. A company of this quality should not be trading below 4X CFPS.
On June 17, Oppenheimer downgraded Devon Energy (DVN) to "Preform". Devon is a first class company that should look a lot better to Wall Street this winter when I believe natural gas prices will move higher.
On June 18, Stifel upgraded Newfield Exploration (NFX) to a BUY. < IMO NFX is a screaming takeover target
BCEI, NFX, RRC and SM will announce Q2 financial results the last week of July. The rest of the pack will announce results the first week of August. We may see a few companies put out operational updates before they release earnings.
The energy sector may be in "limbo" for the summer, but it sure looks like a big rebound is coming this fall. Hang tough my friends, if this is a repeat of 2009 we are in for a nice run up to Christmas.
West Texas Intermediate (WTI) has been trading in a rather tight range between $57.50 and $62.00 since the end of April.
See chart: https://www.tradingview.com/chart/wBMe44ta/
My guess is that WTI stays in this range for awhile until falling U.S. oil production is confirmed and/or demand forecasts go higher. In my opinion, EIA and IEA are grossly underestimating the increase in demand and they will make upward adjustments of several 100,000 barrels per day to their demand forecasts month after month. IEA increased their demand forecast for the first quarter by 300,000 BOPD in their June report. Demand for refined products will be spiking as we move through the 3rd quarter. Demand always increases in the second half of each year, as you can see on this chart: https://www.iea.org/oilmarketreport/omrpublic/
I have updated the Sweet 16 spreadsheet and posted it to the website. None of my valuations changed this week and there were only minor adjustments to First Call's Price Targets.
Laredo Petroleum (LPI) pulled back to just above where it was when I added it to the Sweet 16. This would be a good time to add it to your portfolio.
Bonanza Creek (BCEI) is now trading just above book value. I have a fairly high level of confidence in my forecast model for BCEI and I think their 2nd quarter revenues are going to come in quite a bit higher than the current First Call revenue forecast.
Sweet 16 that are trading below 5X my 2015 operating cash flow per share forecasts: BCEI, DVN, NFX, OAS, SM
You can view my CFPS forecast for each company in column T of the Sweet 16 spreadsheet (Tab 1)
There was an article from Zacks Equity Research that pointed out that SM Energy's (SM) revenues would be $25 million lower than their original forecast because of lower NGL prices. This is a prime example of how the market overreacts to stuff like this. SM's revenues will be over $2.1 Billion this year, so this news needs to be put in context. First Call's operating cash flow per share forecast for SM is very close to mine - $14.00/share. A company of this quality should not be trading below 4X CFPS.
On June 17, Oppenheimer downgraded Devon Energy (DVN) to "Preform". Devon is a first class company that should look a lot better to Wall Street this winter when I believe natural gas prices will move higher.
On June 18, Stifel upgraded Newfield Exploration (NFX) to a BUY. < IMO NFX is a screaming takeover target
BCEI, NFX, RRC and SM will announce Q2 financial results the last week of July. The rest of the pack will announce results the first week of August. We may see a few companies put out operational updates before they release earnings.
The energy sector may be in "limbo" for the summer, but it sure looks like a big rebound is coming this fall. Hang tough my friends, if this is a repeat of 2009 we are in for a nice run up to Christmas.