All the analysts covering Earthstone Energy (ESTE) stock rate it a “buy.” We’ve put Viper Energy Partners (VNOM) in first place and ranked ESTE second, considering the number of analysts covering both stocks.
ESTE is currently trading below the low range ($10) of analysts’ target price. Its average target price of $14.60 offers a 70% upside from its current price.
Wall Street analysts’ bullishness for ESTE could be attributed to the company’s strong presence in the Midland Basin, strong earnings growth outlook, strong operating margins, and low leverage. Analysts expect ESTE to post EPS of $0.67 in 2018. It posted EPS of $0.21 in the first six months of 2018. ESTE lowered its 2018 production guidance during its second-quarter earnings release, which could weigh on its growth estimates.
ESTE now expects a 2018 average daily production of 10,500–11,000 boepd (barrels of oil equivalent per day). That’s 12% lower than the previous guidance of 12,000–12,500 boepd. The expected increase in cash operating costs could also weigh on ESTE’s operating margin and 2018 earnings.
However, the company could miss its EPS estimate for 2018. An EPS miss would still mean a significant improvement compared to an EPS loss of $0.53 in 2017.
Earnings growth momentum to continue
ESTE’s strong earnings growth momentum is expected to continue in 2019 and 2020. It’s expected to be driven by strong production growth and an improvement in its average realized sales price as new pipeline projects come online by the end of next year. Analysts expect ESTE to post ~80% and ~71% EPS growth in 2019 and 2020, respectively. For the same years, ESTE is expected to post CFFO (cash flow from operation) growth of 54.4% and 40.9%, respectively. The company is currently trading at a forward price-to-CFFO of 4.9x. That’s below the industry median of 5.4x.
In the next part, we’ll look at analysts’ ratings for Ring Energy (REI).