Laredo Petroleum (LPI), a pure play Permian-focused E&P[1. exploration and production] company, is on a roll today. LPI stock is up more than 9.0% on strong volumes. In contrast, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is up ~1.5%.
LPI’s surge has been driven by twin benefits. The main push came from the surge in crude oil prices. US crude spiked up on Wednesday after the EIA (U.S. Energy Information Administration) reported a major inventory draw. Overall, WTI (West Texas Intermediate) is up more than 4.0% this week. These recent crude oil gains have lifted the overall energy sector.
The second factor is specific to Laredo Petroleum. LPI was added to the S&P SmallCap 600 Index, replacing HealthEquity (HQY). Carrizo Oil & Gas (CRZO) and Contango Oil & Gas (MCF) are among the other E&P constituents of the S&P SmallCap 600 Index.
Is there any additional upside?
Despite this recent rally, Laredo Petroleum (LPI) stock is down more than 20.0% year-to-date and is trading ~75.0% below its all-time high. The company was trading at a forward price-to-CFFO (cash flow from operations) multiple of 3.3x on September 11, which fell below the industry median of 5.2x. Analysts expect LPI to post CFFO growth of 45.9% in 2018 and 21.0% in 2019.
About 50.0% of analysts surveyed by Reuters rated Laredo Petroleum (LPI) stock as a “hold,” 37.5% rated it as a “buy,” and the remaining 12.5% rated it as a “sell.” The company hasn’t seen any rating updates so far this year.
LPI is currently trading below the low range ($9.00) of the analysts’ target price. Its average target price of $11.90 offers ~40.0% upside potential from its current price levels.