GPOR - Gulfport Energy: Reliance On Hedges Limits Upside (Rating Upgrade)

2024-06-21 09:20:57 ET

Summary

• Gulfport Energy shares have risen 45% in the past year, supported by strong cash flow and a favorable hedge portfolio.
• Q1 results showed positive free cash flow, though this was entirely driven by hedges, which will have mostly rolled off by year-end.
• As hedges roll off, GPOR needs natural gas to remain about $3 to justify its current share price; given the nature of the nat gas market, I see limited upside.

Shares of Gulfport Energy ( GPOR ) have been a very strong performer over the past year, rising by about 45% as its advantageous hedge portfolio and quality asset mix have supported strong cash flow. I last covered GPOR in November , rating shares a “sell.” While I view its business positively, the finite nature of hedges and its elevated valuation left me concerned. Since then, shares have risen 17%, about 5% less than the market. While this is underperformance, given the solidly positive total return, a “hold” rating would have likely been more appropriate. With updated financials, now is a good time to evaluate what the proper rating for GPOR is going forward. I remain cautious but do not see a pressing need to sell shares....

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