Stock Analysis

Earnings Update: Callon Petroleum Company (NYSE:CPE) Just Reported And Analysts Are Boosting Their Estimates

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NYSE:CPE
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It's been a pretty great week for Callon Petroleum Company (NYSE:CPE) shareholders, with its shares surging 12% to US$25.57 in the week since its latest yearly results. Revenues were in line with expectations, at US$1.0b, while statutory losses ballooned to US$63.79 per share. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.

View our latest analysis for Callon Petroleum

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NYSE:CPE Earnings and Revenue Growth February 28th 2021

Following the latest results, Callon Petroleum's seven analysts are now forecasting revenues of US$1.24b in 2021. This would be a notable 20% improvement in sales compared to the last 12 months. Earnings are expected to improve, with Callon Petroleum forecast to report a statutory profit of US$5.54 per share. In the lead-up to this report, the analysts had been modelling revenues of US$1.12b and earnings per share (EPS) of US$3.10 in 2021. So we can see there's been a pretty clear increase in sentiment following the latest results, with both revenues and earnings per share receiving a decent lift in the latest estimates.

It will come as no surprise to learn that the analysts have increased their price target for Callon Petroleum 13% to US$18.07on the back of these upgrades. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Callon Petroleum, with the most bullish analyst valuing it at US$31.00 and the most bearish at US$7.00 per share. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's pretty clear that there is an expectation that Callon Petroleum's revenue growth will slow down substantially, with revenues next year expected to grow 20%, compared to a historical growth rate of 36% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 11% next year. So it's pretty clear that, while Callon Petroleum's revenue growth is expected to slow, it's still expected to grow faster than the industry itself.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Callon Petroleum's earnings potential next year. Pleasantly, they also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow faster than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Callon Petroleum analysts - going out to 2025, and you can see them free on our platform here.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Callon Petroleum that you need to be mindful of.

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What are the risks and opportunities for Callon Petroleum?

Callon Petroleum Company, an independent oil and natural gas company, focuses on the acquisition, exploration, and development of oil and natural gas properties in Permian Basin in West Texas.

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Rewards

  • Trading at 42.2% below our estimate of its fair value

  • Became profitable this year

Risks

  • Earnings are forecast to decline by an average of 11.5% per year for the next 3 years

  • High level of non-cash earnings

  • Has a high level of debt

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