This is a small cap stock with which the SunTrust team currently feels comfortable. Callon Petroleum Co. (NYSE: CPE) is an independent energy company focused on the acquisition, development, exploration and operation of oil and gas properties in the Permian Basin in West Texas. The stock has been bludgeoned, down a stunning 33% since hitting a 52-week high back in early December.
In the report, the analysts note that while the company’s debt burden is slightly above average, they see the commodity price sensitivity as being below average. They also see the reinvestment risk as below average as well. They get to the price target using a below-peer 7.4-times multiple applied to their EBITDA estimates for 2018.
The SunTrust price target is a whopping $18, but the consensus target is even higher at $19.38. The stock closed most recently at $11.60.
This is another small cap stock on which the SunTrust team remains very positive. Earthstone Energy Inc. (NYSE: ESTE) is a growth-oriented independent oil and gas exploration and production company. It is engaged in developing and acquiring oil and gas reserves through an active and diversified program, which includes acquiring, drilling and developing undeveloped leases, asset and corporate acquisitions and exploration activities. Its primary assets are located in the Midland Basin of West Texas, the Eagle Ford trend of south Texas and the Williston Basin of North Dakota.
The company announced late last year that, as a result of its lenders’ semiannual review, the borrowing base under its revolving credit facility has been increased from $75.0 million to $80.0 million. Utilization currently includes $10.0 million of indebtedness and $0.2 million of letters of credit. The facility matures on December 19, 2018.
The SunTrust team has a 2018 EBITDA estimate for the company pegged at $150 million, and they get their price target by applying that to an 8.4-times multiple, which is higher than the company’s peers.
SunTrust has a $20 price target for the stock. The consensus target is posted at $18.18. The stock closed on Monday at $12.00 a share.
While the sell-off in oil has been dramatic, coming in at well over 10%, it’s important to remember that we are just getting out of winter, and with the busy summer driving season not that far away, prices could stabilize and start to move higher again. Plus the record high net longs in the oil futures markets are starting to close positions, and that also could be contributing to weakness.