Vital Energy (VTLE) PT Raised to $50 at JPMorgan

JPMorgan analyst Zach Parham raised the price target on Vital Energy (NYSE: VTLE) to $50.00 (from $49.00) while maintaining a Underweight rating.

The analyst comments "We expect an in-line operational quarter from VTLE, with our production estimates in line with the STe and slightly above the midpoint of guidance, though after marking to market for 2Q commodity prices, our CFPS/EBITDA estimates are 3%/2% below the STe. We estimate CFPS of $6.63, which compares to the STe at $6.80. Our EBITDA estimate of $292 MM compares to the STe at $299 MM. We are modeling 2Q oil production of 58.6 MBo/d, in-line with the STe at 58.5 MBo/d and just above the midpoint of VTLE’s 56-60 MBo/d 2Q guidance range. Given the weak natural gas price environment and VTLE’s Waha exposure, we estimate a pre-hedged natural gas price realization of -$0.28 per Mcf. Our 2Q capex estimate of $232 MM is below the STe ($237 MM) and below the midpoint of VTLE’s guidance range ($225-$250 MM), and we estimate that VTLE will deliver $22 MM in 2Q FCF. We do expect LOE to come in slightly ahead of prior guidance (JPMe at $9.10 per boe vs guidance of $8.90 per boe), though we note recent messaging indicates that VTLE is on track to reduce LOE to ~$8.50 per boe in 2H24. On the 1Q24 earnings call, VTLE highlighted results from three horseshoe lateral wells in Upton County, noting that it can now turn 84 short lateral locations in inventory into 42 long lateral locations through utilizing horseshoe laterals. VTLE estimates that break-evens for these locations improve by $20 per bbl, with plans to drill incremental horseshoe laterals in late 2024/early 2025. At our mid-June energy conference, VTLE noted the potential to pull incremental wells into inventory through utilizing horseshoe laterals, and we’ll be looking for an update on the potential inventory impact on the 2Q earnings call. We’ll also be looking for an update on VTLE’s outlook for M&A. At our conference, CEO Pigott cited a willingness to stretch the balance sheet to 1.5x leverage as long as there was line of sight to get to <1x through FCF generation. VTLE noted being open to acquiring in either the Midland or Delaware Basin, but cited more future expected opportunities in the southern Delaware Basin. Our recent conversations with the company have indicated that it is more likely to use the balance sheet vs equity to finance a transaction. Looking ahead, we are modeling 57.4 MBo/d of oil and 122.4 MBoe/d of total production for 2024 at $789 MM of capex, which compares to the STe of 57.8 MBo/d for oil and 121.6 MBoe/d of total volumes at $803 MM of capex. At recent strip pricing, we estimate $296 MM of FCF, and we note VTLE has limited upside exposure to oil prices in FY24, with ~94% of volumes hedged at ~$76 per bbl. After updating for recent strip pricing, we reiterate our Underweight rating and increase our Dec-24 PT to $50 (from $49)."

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