BUSINESS
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. The company was formerly known as Laredo Petroleum Holdings, Inc. and changed its name to Laredo Petroleum, Inc. in December 2013. Laredo Petroleum, Inc. was incorporated in 2006 and is headquartered in Tulsa, Oklahoma.
INVESTMENT RATING
VTLE is expected to continue to be an important Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Vital Energy has a current Value Trend Rating of C (Low Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Vital Energy has a good Appreciation Score of 83 but a very low Power Rating of 12, triggering the Low Neutral Value Trend Rating.
Vital Energy’s stock is selling well below targeted value. The current stock price of $50.91 compares to targeted value 12 months forward of $172.
Vital Energy’s high appreciation potential results in an appreciation score of 83 (only 17% of the universe has greater appreciation potential.)
Vital Energy has a Power Rating of 12. (This very low Power Rating indicates that VTLE only has a better chance of achieving attractive investment performance over the near to intermediate term than 12% of companies in the universe.)
Factors contributing to this very low Power Rating include: VTLE’s earnings estimates have fallen very significantly in recent months; the Crude Petroleum & Natural Gas comparison group is currently in an unfavorable position; and recent price action has been slightly unfavorable.
INVESTMENT PROFILE
VTLE’s financial strength is average. Financial strength rating is 46.
Relative to the S&P 500 Composite, Vital Energy Inc has moderate Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that VTLE is higher risk. High historical growth is a positive for VTLE. Relative weaknesses include: low financial strength, high stock price volatility, low expected growth, and high earnings variability. VTLE’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. VTLE has unusually low market capitalization.
CURRENT SIGNALS
Vital Energy’s current operations are eroding. Return on equity is falling, reflecting: and falling asset utilization.
Vital Energy’s current technical position is very strong. The stock price is in a 2.6 month up move. The stock has appreciated 37.4% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Marginal positive changes in Vital Energy Inc (NYSE: VTLE) fundamentals have recently occurred: the consensus estimate for December, 2025 increased significantly.
The stock is currently rated C.
Vital Energy Inc (NYSE: VTLE) stock closed at $50.91 on 5/2/24 after a slight decline of -0.06%. However, below average trading volume at 74% of normal accompanied the decline. The stock has declined -7.7% during the last week and has been weak relative to the market over the last nine months.
CASH FLOW
In 2023, Vital Energy experienced a very significant reduction in cash of -$30 million (-68%). Sources of cash were much lower than uses. Cash generated from 2023 EBITDA totaled +$1,039 million. Non-operating sources contributed +$93 million (+9% of EBITDA). Cash taxes contributed +$183 million (+18% of EBITDA). Re-investment in the business amounted to -$2,785 million (-268% of EBITDA). On a net basis, debt investors provided +$461 million (+44% of EBITDA) while equity investors provided +$979 million (+94% of EBITDA).
Vital Energy’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Vital Energy Peer Group. (Since 2021 Non-operating Income, %EBITDA has experienced a very sharp recovery.) In most years, Vital Energy was in the top quartile and third quartile. Currently, Vital Energy is upper quartile at +9% of EBITDA (+$93 million).
Vital Energy’s Cash Taxes, %EBITDA has exhibited a minor overall uptrend over the period. This improvement was accompanied by an opposite trend for the Vital Energy Peer Group. In most years, Vital Energy was in the top quartile and second quartile. Currently, Vital Energy is upper quartile at +18% of EBITDA (+$183 million).
Vital Energy’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Vital Energy Peer Group. In most years, Vital Energy was in the third quartile and lower quartile. Currently, Vital Energy is lower quartile at -268% of EBITDA (-$2,785 million).
Vital Energy’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Vital Energy Peer Group. In most years, Vital Energy was in the top quartile and lower quartile. Currently, Vital Energy is at the upper quartile at +44% of EBITDA (+$461 million).
Vital Energy’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Vital Energy Peer Group. In most years, Vital Energy was in the third quartile and top quartile. Currently, Vital Energy is upper quartile at +94% of EBITDA (+$979 million).
Vital Energy’s Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Vital Energy Peer Group. (Since 2021 Change in Cash, %EBITDA has experienced a minor decline.) In most years, Vital Energy was in the third quartile and lower quartile. Currently, Vital Energy is above median at -3% of EBITDA (-$30 million).
Vital Energy’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Vital Energy Peer Group. In most years, Vital Energy was in the lower quartile. Currently, Vital Energy is lower quartile at +1%.
PROFITABILITY
Vital Energy’s return on equity has improved very significantly since 2014. The current level of 25.0% is 1.47X the low for the period and is -65.2% from the high.
Vital Energy’s very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors is a significant analytical factor.
The productivity of Vital Energy’s assets rose over the full period 2014-2023: asset turnover has enjoyed a volatile overall uptrend but it experienced a very sharp decline after the 2022 high.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2020 level.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Vital Energy’s return on equity is upper quartile (25.0%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is above median (9.9%) reflecting asset turnover that is slightly below median (0.30X) and at median pretax margin (33.1%).
Tax “keep” rate (income tax management) is upper quartile (135.8%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at the upper quartile (1.85X).
GROWTH RATES
There are no significant differences between Vital Energy’s longer term growth and growth in recent years.
Vital Energy’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been -3.0% per year.
Total asset growth has been -6.8% per year.
Annual E.P.S. growth has been -9.2% per year.
Equity growth has been 4.4% per year. (More recently it has been 35.7%.)
No consensus growth rate forecast is available for Vital Energy.
Relative to the Vital Energy Peer Group, Vital Energy’s historical growth measures are consistently lower quartile. Revenue growth (-3.0%) has been lower quartile. Total asset growth (-6.8%) has been lower quartile. E.P.S. growth (-9.2%) has been lower quartile. Equity growth (4.4%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Vital Energy’s stock price performance has been extremely volatile and significantly below market. Between July, 2013 and May, 2024, Vital Energy’s stock price fell -88%; relative to the market, this was a -96% loss. Significant price moves during the period: 1) July, 2022 – May, 2023: -53%; 2) October, 2020 – June, 2021: +1054%; 3) April, 2020 – October, 2020: -63%; 4) March, 2020 – April, 2020: +187%; 5) December, 2019 – March, 2020: -87%; and 6) April, 2018 – May, 2019: -76%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 14.0% is slightly above median relative to the S&P 500 Composite.
In addition to being slightly above median relative to S&P 500 Composite, current annual total return performance through April, 2024 of 14.0% is at median relative to Vital Energy Inc Peer Group.
Current 5-year total return performance of -2.6% is lower quartile relative to the S&P 500 Composite.
Through April, 2024, with lower quartile current 5-year total return of -2.6% relative to S&P 500 Composite, Vital Energy’s total return performance is substantially below median relative to Vital Energy Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, VTLE’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the ratio of enterprise value/revenue, followed by the ratio of enterprise value/assets, then by the ratio of enterprise value/earnings before interest and taxes, then by the price/equity ratio. The lowest factor, price/earnings ratio, is lower quartile.
Relative to Vital Energy Peer Group, VTLE’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the ratio of enterprise value/assets, followed by the ratio of enterprise value/earnings before interest and taxes, then by the ratio of enterprise value/revenue, then by the price/equity ratio. The lowest factor is the price/earnings ratio.
Vital Energy has a major value gap compared to the median. For VTLE to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 2.34X to 4.96X. If VTLE’s ratio of enterprise value/revenue were to rise to 4.96X, its stock price would be higher by $111 to $162.
For VTLE to achieve upper quartile valuation relative to the Vital Energy Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.34X to 5.35X. If VTLE’s ratio of enterprise value/revenue were to rise to 5.35X, its stock price would increase by $127 from the current level of $51.
VALUE TARGETS
VTLE is expected to continue to be an important Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Vital Energy’s current Price Target of $145 represents a +184% change from the current price of $50.91.
This high appreciation potential results in an appreciation score of 83 (only 17% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 83, the low Power Rating of 12 results in an Value Trend Rating of C.
Vital Energy’s current Price Target is $145 (-9% from the 2023 Target of $159 but +184% from the 05/02/24 price of $50.91). This slight fall in the Target is the result of a -7% decrease in the equity base and a -2% decrease in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted decline in cost of equity has a very large positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted decline in return on equity has a very large negative impact.
PTR’s return on equity forecast is 13.9% — below our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is significantly below the 2016 peak of 59%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly below the 2019 peak of 22%.
PTR’s cost of equity forecast is 7.8% — below recent levels. Forecasted cost of equity erratic but little changed between 2015 and 2023. The current forecast is well below the 2015 peak of 15.1%.
At Vital Energy’s current price of $50.91, investors are placing a negative value of $-40 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 22.0% versus a cost of equity of 12.1%.
PTR’s 2025 Price Target of $145 is based on these forecasts and reflects an estimated value of existing assets of $106 and a value of future investments of $38.
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