Liquids Focus And Cost Reductions Will Lead To Improved 2025 Prospects

Key Takeaways

• Gulfport Energy plans to boost liquids production and optimize costs to improve margins and enhance cash flow despite maintaining stable overall production.
  
• Strategic hedging and stock repurchases aim to stabilize cash flow and potentially boost EPS, leveraging volatile market conditions for growth.
  
• Heavy reliance on natural gas markets and focus on liquids could risk revenue, with flat growth guidance and limited investment flexibility potentially affecting profitability and perception.

Catalysts

Engages in the acquisition, exploration, and production of natural gas, crude oil, and natural gas liquids in the United States.

• Gulfport Energy's 2025 development program aims to maintain flat total production and capital investments while significantly increasing liquids production by 30% year-over-year, which could enhance revenue through higher sales from liquid hydrocarbons.
  
• Efficiency gains and capital allocation optimizations, including a substantial reduction in drilling and completion costs per foot of completed lateral by approximately 20%, are expected to improve net margins due to lowering operational expenses.
  
• The focus on liquids-rich areas, such as the Utica lean condensate and Marcellus condensate windows, is projected to bolster adjusted free cash flow generation by over 100% at current commodity prices, positively impacting earnings.
  
• Continuation of stock repurchases as they plan to return substantially all 2025 adjusted free cash flow (excluding discretionary acreage acquisitions) through repurchases, suggesting potential EPS growth.
  
• Strategic hedging of natural gas production for 2025 with downside protection and participation in higher prices might stabilize cash flows and provide potential upside to revenue in volatile market conditions.

Gulfport Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gulfport Energy's revenue will grow by 21.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -29.2% today to 29.4% in 3 years time.
• Analysts expect earnings to reach $478.4 million (and earnings per share of $38.43) by about April 2028, up from $-265.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.5x on those 2028 earnings, up from -11.9x today. This future PE is lower than the current PE for the US Oil and Gas industry at 11.8x.
• Analysts expect the number of shares outstanding to decline by 1.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.92%, as per the Simply Wall St company report.

Gulfport Energy Future Earnings Per Share Growth

Risks

• The reliance on a constructive natural gas environment and the volatility of natural gas prices could pose a risk to revenue and free cash flow projections.
  
• The focus on liquids production, despite leading to a temporary increase in operating costs, could affect net margins if commodity prices decline or if there are delays in expected pricing improvements.
  
• Capital allocation heavily focused on share repurchases limits the flexibility to invest in new growth opportunities, potentially impacting long-term earnings potential.
  
• The flat production guidance for total equivalent production might not meet investor expectations for growth, possibly affecting market perception and stock price.
  
• The increase in liquids exposure could result in higher per unit operating costs, which may offset the additional revenue projected from higher liquids pricing, impacting overall profitability.

Valuation

• The analysts have a consensus price target of $218.0 for Gulfport Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $257.0, and the most bearish reporting a price target of just $193.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $478.4 million, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 6.9%.
• Given the current share price of $177.23, the analyst price target of $218.0 is 18.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.