INDO - Indonesia Energy Corp (INDO) - Rating Upgraded PO Reinstated

We are upgrading the shares of INDO to Outperform from Market Perform following weakness in the share price. Recall that we had downgraded the shares on March 3rd when the share price crossed our price objective of $8.00 per share and traded above our P.O. for several weeks. The shares have been weak in recent weeks and now trade below our estimated fair value. As a result, we are upgrading the shares and reinstating our $8.00 price objective.Stock value is not dependent on near-term energy pricing. Our valuation work is based on a two-stage discounted cash flow analysis. In the case of INDO who has limited current production but large drilling plans, much of the company's valuation is back-end loaded. When we downgraded the shares, we did so because they had risen based on near-term oil price strength even as our long-term oil price forecast had not changed. The reverse seems to be happening currently. The shares of INDO have fallen in recent weeks as short-term oil price have fallen but our long-term oil price forecast has not changed.Shares can be volatile. Use our P.O as a guide. We would offer a word of caution to potential investors. The shares of INDO are thinly traded and can be volatile. We would encourage investors to use our price objective as a guide for investing and not short-term changes in energy prices. We look for the company to turn drilling results into cash flow as a way to increase long-term valuation. We look for the company to drill four wells in Kruh field in 2021 and to begin drilling in the Citarum field in 2022. An acceleration of the company's drilling plans could add to our fundamental valuation. Conversely, delays in the drilling program would push expected cash flow to dates beyond that in our models and reduce our fundamental valuation.Read More >>