Laredo Petroleum (NYSE:LPI) - Share price, News & Analysis

Q: What is the Fair Price of LPI when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

LPI ($68.71) is trading below our estimate of [[fair value]] ($175.21)

LPI fundamental analysis
Snowflake Score
Valuation	5/6
Future Growth	3/6
Past Performance	2/6
Financial Health	3/6
Dividends	0/6

LPI Stock Overview

Rewards

Trading at 60.8% below our estimate of its fair value

Earnings are forecast to grow 15.63% per year

Became profitable this year

Risk Analysis

High level of non-cash earnings

Has a high level of debt

Volatile share price over the past 3 months

Shareholders have been diluted in the past year

Laredo Petroleum Competitors

Kimbell Royalty Partners

NYSE:KRP

US$1.2b

Dorchester Minerals

NasdaqGS:DMLP

US$1.1b

Brigham Minerals

NYSE:MNRL

US$1.8b

SilverBow Resources

NYSE:SBOW

US$969.7m

Price History & Performance

Summary of all time highs, changes and price drops for Laredo Petroleum
Historical stock prices
Current Share Price	US$68.71
52 Week High	US$120.86
52 Week Low	US$36.25
Beta	3.55
1 Month Change	3.74%
3 Month Change	17.67%
1 Year Change	57.81%
3 Year Change	21.83%
5 Year Change	-71.15%
Change since IPO	-81.02%

Recent News & Updates

Aug 11

Laredo Petroleum: Leech Package Underperformance Trims Its Value

Laredo's Leech wells have underperformed, with early oil production results tracking 70% below its other recent Central Howard wells. This contributed to Laredo reducing its oil production guidance for 2022 by approximately 6% and its FCF guidance by $70 million. Laredo still looks capable of generating over $750 million in positive cash flow in 2022 and 2023 combined at current strip. Laredo's estimated value is reduced due to the Leech underperformance as well as uncertainty around future performance at nearby DSUs. Despite this, Laredo still appears to be a reasonably good value at its current price. Laredo Petroleum (LPI) took a hit after it reported poor early production performance from its six well Leech package. This resulted in Laredo reducing its oil production guidance for 2022 by around 6% at guidance midpoint, which reduced its free cash flow projection for 2022 by around $70 million. Laredo still looks capable of generating over $750 million in positive cash flow in 2022 and 2023 combined at current strip prices. While its rate of debt paydown is a bit slower than I projected before, it still should be able to pay off its credit facility debt and redeem its 2025 notes via cash on hand by early 2024. I've reduced Laredo's estimated value to a range of $72 to $89 with long-term $70 WTI oil and $3.50 NYMEX gas. This is $10 lower than my previous valuation estimate and reflects the impact of the poor Leech package performance and some uncertainty around the future performance of nearby DSUs. Leech Wells Laredo's drop in share price can largely be attributed to the poor results from its six well Leech package. These wells are 15,000' Wolfcamp A wells that are on the southeastern edge of Laredo's Central Howard acreage. Laredo considered the Leech DSU to be its highest-risk Howard County DSU due to its location in an area with weaker rock quality. It tried to mitigate this by not codeveloping the Lower Spraberry along with the Wolfcamp A in the Leech DSU as well as using wider spacing for its Wolfcamp A wells. Despite this, the initial results have been quite poor. The Leech wells have produced around 70% less oil per well (adjusted to 10,000' laterals) after 50 days of production compared to Laredo's average Central Howard well from Q2 2021 onward. Laredo's Well Performance (laredopetro.com) If that trend continues, the 15,000' Leech wells will end up producing only around 70,000 barrels of oil per well after one year. These wells are also unlikely to pay off within two years at $90 WTI oil, although the related capex is a sunk cost. Laredo did note that the westernmost Leech wells performed better than its eastern Leech wells, so there is some hope that Laredo's remaining Central Howard locations will have much better production results. Since the nearest DSUs to Leech aren't scheduled to be turned-in-line until 2024, Laredo's 2023 production targets probably aren't at risk. However, it does also mean that it will take a while before we find out whether those DSUs will also produce relatively poorly. Laredo's Howard County Acreage (laredopetro.com) Updated 2022 Outlook At Current Strip The current strip for 2022 is now in the high-$90s for WTI oil. At that price, Laredo is now projected to generate $1.886 billion in oil and gas revenue with its revised guidance, while its hedges would have negative $529 million in value. Laredo reduced its oil production guidance midpoint by 2,500 barrels and its total production guidance midpoint by 1,250 BOEPD. It now expects to average 82,750 BOEPD (47% oil) production during 2022, compared to its previous guidance for 84,000 BOEPD (49% oil). The majority of the reduction in guidance appears to be due to the underperformance of the Leech wells, although excluding the Leech adjustments its oil production still looked to be trending towards the lower end of its original guidance range. Barrels/Mcf $ Per Barrel/Mcf (Realized) $ Million Oil 14,052,500 $98.50 $1,384 NGLs 7,994,869 $31.00 $248 Natural Gas 48,938,288 $5.20 $254 Hedge Value -$529 Total Revenue $1,357 Laredo has maintained its capital expenditure budget at $550 million for 2022 after previously increasing it from $520 million. Lease operating expenses have crept a bit higher to $5.70 per BOE. This results in a projection that Laredo can generate $274 million in positive cash flow in 2022 at current strip prices.

Jul 29

Laredo Petroleum (NYSE:LPI) Has No Shortage Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the...

Shareholder Returns

	LPI	US Oil and Gas	US Market
7D	2.9%	7.2%	3.2%
1Y	57.8%	58.4%	-10.1%

Return vs Industry: LPI matched the US Oil and Gas industry which returned 58.4% over the past year.

Return vs Market: LPI exceeded the US Market which returned -10.1% over the past year.

Price Volatility

Is LPI's price volatile compared to industry and market?
LPI volatility
LPI Average Weekly Movement	13.7%
Oil and Gas Industry Average Movement	8.9%
Market Average Movement	7.7%
10% most volatile stocks in US Market	16.9%
10% least volatile stocks in US Market	3.2%

Stable Share Price: LPI is more volatile than 75% of US stocks over the past 3 months, typically moving +/- 14% a week.

Volatility Over Time: LPI's weekly volatility (14%) has been stable over the past year, but is still higher than 75% of US stocks.

About the Company

Founded	Employees	CEO	Website
2006	273	Mikell Pigott	https://www.laredopetro.com

Laredo Petroleum, Inc., an independent energy company, engages in the acquisition, exploration, and development of oil and natural gas properties in the Permian Basin of West Texas, the United States. The company sells oil, natural gas liquids, and natural gas. As of December 31, 2021, it had assembled 166,064 net acres in the Permian Basin; and had total proved undeveloped reserves of 86,592 thousand barrels of oil equivalent.

Laredo Petroleum Fundamentals Summary

How do Laredo Petroleum's earnings and revenue compare to its market cap?
LPI fundamental statistics
Market Cap	US$1.15b
Earnings (TTM)	US$528.87m
Revenue (TTM)	US$1.94b

2.2x

P/E Ratio

0.6x

P/S Ratio

Is LPI overvalued?

See Fair Value and valuation analysis

Earnings & Revenue

Key profitability statistics from the latest earnings report
LPI income statement (TTM)
Revenue	US$1.94b
Cost of Revenue	US$529.69m
Gross Profit	US$1.41b
Other Expenses	US$883.46m
Earnings	US$528.87m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)	31.73
Gross Margin	72.72%
Net Profit Margin	27.23%
Debt/Equity Ratio	190.0%

How did LPI perform over the long term?

See historical performance and comparison

We’ve recently updated our valuation analysis.

Valuation

Is LPI undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

5/6

Valuation Score 5/6

Price-To-Earnings vs Peers
Price-To-Earnings vs Industry
Price-To-Earnings vs Fair Ratio
Below Fair Value
Significantly Below Fair Value
Analyst Forecast

Key Valuation Metric

Which metric is best to use when looking at relative valuation for LPI?

Other financial metrics that can be useful for relative valuation.

The above table shows the n/a ratio for LPI. This is calculated by dividing LPI's market cap by their current preferred multiple.
What is LPI's n/a Ratio?
n/a Ratio	0x
n/a	n/a
Market Cap	US$1.15b

LPI key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue	1.2x
Enterprise Value/EBITDA	2.6x
PEG Ratio	0.1x

Price to Earnings Ratio vs Peers

How does LPI's PE Ratio compare to its peers?

LPI PE Ratio vs Peers

The above table shows the PE ratio for LPI vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
Company	PE	Estimated Growth	Market Cap
Peer Average	13.9x
KRP Kimbell Royalty Partners	20.7x	24.6%	US$1.2b
DMLP Dorchester Minerals	10.2x	n/a	US$1.1b
MNRL Brigham Minerals	15.1x	-6.3%	US$1.8b
SBOW SilverBow Resources	9.4x	117.1%	US$969.7m
LPI Laredo Petroleum	2.2x	15.6%	US$1.1b

Price-To-Earnings vs Peers: LPI is good value based on its Price-To-Earnings Ratio (2.2x) compared to the peer average (13.9x).

Price to Earnings Ratio vs Industry

How does LPI's PE Ratio compare vs other companies in the US Oil and Gas Industry?

Price-To-Earnings vs Industry: LPI is good value based on its Price-To-Earnings Ratio (2.2x) compared to the US Oil and Gas industry average (9.8x)

Price to Earnings Ratio vs Fair Ratio

What is LPI's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

LPI PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio	2.2x
Fair PE Ratio	17.5x

Price-To-Earnings vs Fair Ratio: LPI is good value based on its Price-To-Earnings Ratio (2.2x) compared to the estimated Fair Price-To-Earnings Ratio (17.5x).

Share Price vs Fair Value

What is the Fair Price of LPI when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: LPI ($68.71) is trading below our estimate of fair value ($175.21)

Significantly Below Fair Value: LPI is trading below fair value by more than 20%.

Analyst Price Targets

What is the analyst 12-month forecast and do we have any statistical confidence in the consensus price target?

Analyst Forecast: Target price is more than 20% higher than the current share price, but analysts are not within a statistically confident range of agreement.

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Future Growth

How is Laredo Petroleum forecast to perform in the next 1 to 3 years based on estimates from 5 analysts?

Future Growth Score

3/6

Future Growth Score 3/6

Earnings vs Savings Rate
Earnings vs Market
High Growth Earnings
Revenue vs Market
High Growth Revenue
Future ROE

15.6%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts

Analyst Future Growth Forecasts

Earnings vs Savings Rate: LPI's forecast earnings growth (15.6% per year) is above the savings rate (1.9%).

Earnings vs Market: LPI's earnings (15.6% per year) are forecast to grow faster than the US market (14.4% per year).

High Growth Earnings: LPI's earnings are forecast to grow, but not significantly.

Revenue vs Market: LPI's revenue is expected to decline over the next 3 years (-4.9% per year).

High Growth Revenue: LPI's revenue is forecast to decline over the next 3 years (-4.9% per year).

Earnings per Share Growth Forecasts

Future Return on Equity

Future ROE: LPI's Return on Equity is forecast to be very high in 3 years time (44.8%).

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Past Performance

How has Laredo Petroleum performed over the past 5 years?

Past Performance Score

2/6

Past Performance Score 2/6

Quality Earnings
Growing Profit Margin
Earnings Trend
Accelerating Growth
Earnings vs Industry
High ROE

-35.4%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: LPI has a high level of non-cash earnings.

Growing Profit Margin: LPI became profitable in the past.

Past Earnings Growth Analysis

Earnings Trend: LPI has become profitable over the past 5 years, growing earnings by -35.4% per year.

Accelerating Growth: LPI has become profitable in the last year, making the earnings growth rate difficult to compare to its 5-year average.

Earnings vs Industry: LPI has become profitable in the last year, making it difficult to compare its past year earnings growth to the Oil and Gas industry (188.3%).

Return on Equity

High ROE: Whilst LPI's Return on Equity (77.84%) is outstanding, this metric is skewed due to their high level of debt.

Discover strong past performing companies

Financial Health

How is Laredo Petroleum's financial position?

Financial Health Score

3/6

Financial Health Score 3/6

Short Term Liabilities
Long Term Liabilities
Debt Level
Reducing Debt
Debt Coverage
Interest Coverage

Financial Position Analysis

Short Term Liabilities: LPI's short term assets ($374.0M) do not cover its short term liabilities ($799.4M).

Long Term Liabilities: LPI's short term assets ($374.0M) do not cover its long term liabilities ($1.4B).

Debt to Equity History and Analysis

Debt Level: LPI's net debt to equity ratio (168.3%) is considered high.

Reducing Debt: LPI's debt to equity ratio has reduced from 428.4% to 190% over the past 5 years.

Debt Coverage: LPI's debt is well covered by operating cash flow (65.7%).

Interest Coverage: LPI's interest payments on its debt are well covered by EBIT (4.6x coverage).

Balance Sheet

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Dividend

What is Laredo Petroleum current dividend yield, its reliability and sustainability?

Dividend Score

0/6

Dividend Score 0/6

Notable Dividend
High Dividend
Stable Dividend
Growing Dividend
Earnings Coverage
Cash Flow Coverage

Dividend Yield vs Market

Notable Dividend: Unable to evaluate LPI's dividend yield against the bottom 25% of dividend payers, as the company has not reported any recent payouts.

High Dividend: Unable to evaluate LPI's dividend yield against the top 25% of dividend payers, as the company has not reported any recent payouts.

Stability and Growth of Payments

Stable Dividend: Insufficient data to determine if LPI's dividends per share have been stable in the past.

Growing Dividend: Insufficient data to determine if LPI's dividend payments have been increasing.

Earnings Payout to Shareholders

Earnings Coverage: Insufficient data to calculate payout ratio to determine if its dividend payments are covered by earnings.

Cash Payout to Shareholders

Cash Flow Coverage: Unable to calculate sustainability of dividends as LPI has not reported any payouts.

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Management

How experienced are the management team and are they aligned to shareholders interests?

3.3yrs

Average management tenure

CEO

Mikell Pigott (48 yo)

3.25yrs

Tenure

US$5,933,849

Compensation

Mr. Mikell Jason Pigott has been the President and Director of Laredo Petroleum, Inc. since May 28, 2019 and is its Chief Executive Officer since October 1, 2019. Mr. Pigott served as Executive Vice Presid...

CEO Compensation Analysis

Compensation vs Market: Mikell's total compensation ($USD5.93M) is above average for companies of similar size in the US market ($USD3.86M).

Compensation vs Earnings: Mikell's compensation has been consistent with company performance over the past year.

Leadership Team

Experienced Management: LPI's management team is considered experienced (3.3 years average tenure).

Board Members

Experienced Board: LPI's board of directors are not considered experienced ( 2.6 years average tenure), which suggests a new board.

Ownership

Who are the major shareholders and have insiders been buying or selling?

Insider Trading Volume

Insider Buying: Insufficient data to determine if insiders have bought more shares than they have sold in the past 3 months.

Recent Insider Transactions

Ownership Breakdown

Dilution of Shares: Shareholders have been diluted in the past year, with total shares outstanding growing by 5.9%.

Data	Last Updated (UTC time)
Company Analysis	2022/08/13 00:00
End of Day Share Price	2022/08/12 00:00
Earnings	2022/06/30
Annual Earnings	2021/12/31