Market Overview

Citi On Callon Petroleum: Needs More Inventory For Meaningful Upside

Share:
Citi On Callon Petroleum: Needs More Inventory For Meaningful Upside

Citi Research initiated coverage on Callon Petroleum Company (NYSE: CPE) with a Neutral rating. According to the report published Wednesday, the company has quality assets and good balance sheet, but needs more inventory for meaningful upside.

The analysts noted the strong balance sheet provides some protection against weakening commodity prices and projected YE'16 Net Debt/EBITDAX at 2.1x with organic de-leveraging to 0.9x by YE'18 on NYMEX.

Related Link: The Economic Weight Of Oil Explained

"With our activity assumptions, we estimate Callon Petroleum has 12 years of overall drilling but only ~5–7 years in its two highest return areas (Monarch and WildHorse). We tend to favor names that have core inventory lives of at least 10 years and think that stocks begin to trade at a discount when inventory falls below ~6–8 years as investors impute some reinvestment risk," the report read.

Citi applied a 5 percent discount to Callon Petroleum's NAV, because of the inventory concerns, and proposed a $12 price target on its stock. The analysts noted that, despite the high quality and strong balance sheet, they remain neutral until more valuation upside and inventory depth is seen.

Latest Ratings for CPE

DateFirmActionFromTo
Jul 2019DowngradesBuyHold
Jul 2019UpgradesEqual-WeightOverweight
May 2019UpgradesEqual-WeightOverweight

View More Analyst Ratings for CPE
View the Latest Analyst Ratings

Posted-In: CitiAnalyst Color Long Ideas Commodities Initiation Markets Analyst Ratings Trading Ideas

 

Related Articles (USO + CPE)

View Comments and Join the Discussion!

Salesforce Back To Friday's Highs

Will IHS Offset Energy Sector Slump With Markit Merger?