Liquids-rich Drilling Expansion And Operational Efficiencies Will Strengthen Future Prospects

Key Takeaways

• High-margin liquids-rich drilling and strategic acquisitions are expected to boost revenue and net margins with increased high-value condensate production.
  
• Operational efficiencies are anticipated to decrease costs and enhance free cash flow, while expanded share repurchase boosts earnings per share.
  
• Reliance on capital efficiencies, hedging, and land acquisitions poses risks if costs rise, strategies weaken, or acquisitions become unfavorable, affecting margins and growth.

Catalysts

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

• Expansion of a high-margin liquids-rich drilling program, which is expected to enhance Gulfport's revenue and net margins by increasing high-value condensate production.
  
• Implementation of a pressure management program aiming to improve well performance and reduce costs, expected to contribute to higher cumulative recoveries, decreasing capital expenditures and improving net margins.
  
• Significant inventory additions and strategic acquisitions boosting Gulfport's liquids-rich acreage, likely elevating future revenue by increasing drilling opportunities with higher returns.
  
• Reductions in future maintenance capital requirements due to operational improvements and efficiencies, anticipated to enhance free cash flow and strengthen earnings.
  
• Expanded share repurchase authorization reflecting management's confidence in undervaluation, poised to increase earnings per share by reducing outstanding shares.

Gulfport Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gulfport Energy's revenue will grow by 23.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.8% today to 35.4% in 3 years time.
• Analysts expect earnings to reach $585.6 million (and earnings per share of $32.2) by about December 2027, up from $219.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.3x on those 2027 earnings, down from 14.1x today. This future PE is lower than the current PE for the US Oil and Gas industry at 10.9x.
• Analysts expect the number of shares outstanding to grow by 0.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.39%, as per the Simply Wall St company report.

Gulfport Energy Future Earnings Per Share Growth

Risks

• The reliance on capital efficiencies and vendor cost management for reducing expenditure may not be sustainable long-term if service costs rise again, potentially increasing capital costs and affecting net margins.
  
• Gulfport’s strategy of shifting towards more liquids production could backfire if gas prices increase meaningfully, as the heavy liquids focus might lead to missed opportunities in gas revenue potential.
  
• The company is significantly relying on hedging to protect against natural gas price volatility; however, if market conditions change unexpectedly, it could undermine the hedge strategy, impacting revenues and cash flow stability.
  
• Discretionary land acquisitions have bolstered the company's inventory, but a potential inability to continue such acquisitions at favorable terms in the future could constrain growth and affect long-term revenue streams.
  
• There is execution risk associated with operational expansions and efficiency improvements; failure to maintain high levels of operational efficiency could lead to increased costs and reduced earnings.

Valuation

• The analysts have a consensus price target of $191.11 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 $243.0, and the most bearish reporting a price target of just $164.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.7 billion, earnings will come to $585.6 million, and it would be trading on a PE ratio of 7.3x, assuming you use a discount rate of 7.4%.
• Given the current share price of $174.48, the analyst's price target of $191.11 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.