Vitesse Energy Stock: A Bright Outlook Inspires Optimism (NYSE:VTS)

Investment Thesis

Vitesse Energy, Inc. (NYSE:VTS) has been on an upward trajectory since its IPO, and currently, it appears to be testing its resistance zone at about $25.75. I am bullish on the company, given the promising acquisitions it announced recently, its upgraded revisions, and a promising 2024 outlook. Additionally, the company is de-risking, as evidenced by its increased hedging capacity.

The recent geopolitical wars, particularly in Ukraine and Gaza, add to my bullish stance. In my opinion, these wars will continue to deplete oil and gas resources, leading to greater demand and price increases. This, in my opinion, will be a significant growth driver for VTS. While I am bullish on VTS long-term, its Q3 2023 earnings report is a major short-term catalyst. I expect a strong Q3 2023 based on the opportunity arising from demand due to increasing demand, which I believe will drive the company’s share prices past the resistance zone.

Q3 2023 Earnings Report: Short-term Volatility Catalyst

VTS stated that it will release its third-quarter 2023 financial and operating results after the market close on Wednesday, November 1, 2023. In light of this anticipated earnings report, here are my expectations and how I expect share prices to react. I expect that VTS will report a strong Q3 2023 earnings performance, driven by the higher demand and price for its oil and gas products in the US market. The company could benefit from the global geopolitical wars that have disrupted or reduced major producers of oil and gas supplies, such as Russia, Saudi Arabia, or Iran. The company could also gain a competitive edge over its rivals that rely more on imported oil and gas or have operations in conflict zones.

With this background, expect that the company will report a revenue growth of about 15% QoQ to about $53.67 million and an earnings growth of about 20% QoQ to about $0.42 per share for Q3 2023. These estimates are based on the company’s historical data and industry trends, especially the growing demand and increased prices. I also expect that the company will maintain or increase its quarterly dividend of $0.5 per share.

In light of these anticipations, I think the company’s share price will benefit from the Q3 2023 earnings release, which may show its tenacity and room for expansion in the oil and gas sector. It might also gain from enhanced investor confidence and sentiment along with more analyst coverage and ratings. Additionally, the market may witness more demand and volume for the company’s shares. All of this could lead to a sharp increase in the company’s share price.

Growth Alignment: Acquisitions And De-risking

VTS appears to be aligning itself for long-term growth. I believe so, given the company’s recent acquisitions and the increased hedging. To further back my upbeat outlook is the company’s increased 2023 guidance and 2024 outlook. To begin with, VTX has acquired new oil and gas interests in North Dakota’s Williston Basin, resulting in roughly $50 million in acquisition and related development capital expenditures in the third and fourth quarters of 2023. These acquisitions raise the company’s capital expenditures guidance range for 2023 and are expected to enhance production and cash flows significantly in the fourth quarter of 2023 and, more importantly, for the full year of 2024.

Based on the company’s revised 2023 guidance and preliminary 2024 outlook, the acquisitions will increase its annual production by about 10% in 2023 and 20% in 2024, compared to the previous guidance. Oil as a percentage of the annual output will also increase slightly from 66%-68% in 2023 to 67%-71% in 2024. Given this background, my projections from this deal are based on several assumptions.

Assuming an average oil price of $80 per barrel and an average natural gas price of $4 per thousand cubic feet, the acquisitions will increase the company’s annual revenues by about $40 million in 2023 and $90 million in 2024. Furthermore, VTS noted that these acquisitions were underwritten at a discount to current NYMEX strip prices, exceeding its internal rate of return threshold. This signifies that the corporation expects its acquisitions to provide a positive net present value and return on investment over time.

Furthermore, the company stated that it took advantage of higher oil prices and hedged fourth-quarter 2023 and 2024 oil production connected with these acquisitions, increasing the estimated return rates. According to the company’s hedging report, it has locked in an average oil price of $79.11 per barrel for the fourth quarter of 2023 and $78.95 per barrel for 2024, both of which are higher than the current NYMEX futures prices for December 2023 and December 2024 of $76.35 per barrel and $72.75 per barrel, respectively. As a result, the acquisitions will boost earnings by lowering the company’s vulnerability to oil price volatility and enhancing cash flow stability.

In summary, VTS secured its future by boosting output in response to rising demand and de-risking further through a revamped hedging plan. I believe VTS is almost impervious to market volatility, ensuring investors of consistent cash flow generation in the future. Based on this background, I am confident about the company’s future financial prospects, which gives me optimism for its share price growth.

Technical Analysis

This section covers VTS’s technical analysis using several indicators. The stock price of Vitesse has been in an uptrend since it reached a 52-week low of $13.90. It has gained about 75.6% of its value since then and is currently trading at $24.42.

The price is higher than its 50-day, 100-day, and 200-day moving averages, all of which are sloping upward, indicating a bullish trend. The stock has been making higher lows and testing the resistance level at around $25.75 several times. A breakout above this level could trigger a strong rally.

Another indicator is the on-balance volume [OBV] indicator, which shows that the buying pressure has been dominant in the past few months, as the OBV line has been making higher highs along with the price. The accumulation/distribution line also confirms the positive convergence between price and volume, indicating that investors are accumulating their shares. To complement this is, the average directional index [ADX] shows that the uptrend is strong and stable, as the ADX line is rising, while the positive directional indicator (+DI) is above the negative directional indicator (-DI).

Moving to the Oscillators, The moving average convergence divergence [MACD] indicator shows that the bullish momentum is increasing, as the MACD line is above the signal line and both lines are moving further away from the zero line. The MACD histogram is also positive and growing larger. Further, the relative strength index [RSI] shows that the stock is overbought, as the RSI line is at 58.9 and rising, indicating that the bulls are in control, but the shares are not yet overbought, and therefore the stock has room for further upside.

.

Lastly are the support and resistance levels. VTS faces strong resistance at around $25.75, which is the upper boundary of the ascending triangle pattern and also a psychological level. A break above this level could signal a strong rally. I would set this zone as the right entry point for long-term investors. The buy decision should come after a break and a retest on this zone. The stock faces strong support at around $21.03, which is the lower boundary of the consolidation rectangle pattern. A break below this level could lead to a significant drop in price.

Based on my technical analysis, I would recommend investors buy VTS shares now, as the stock is in a strong uptrend and shows signs of breakout. Investors looking for a long-term investment opportunity could wait for a breakout above $27.75 and set a stop-loss below $21.03.

Risks

Although I am bullish on this stock, investors should be wary of the potential risks of investing in VTS. Here are some of the risks. First, the company focuses primarily on developing and producing oil and natural gas properties in the Williston Basin of North Dakota. This means that it has a high geographic concentration risk, as any adverse events or conditions affecting this region, such as natural disasters, environmental regulations, pipeline disruptions, or political instability, could significantly impact its operations and financial performance.

Secondly, Vitesse is a relatively small oil and gas exploration and production company with a market capitalization of about $702 million. This means that it may have less financial resources, operational flexibility, and bargaining power than its larger competitors. It may also face higher costs of capital, lower liquidity, and greater volatility in its stock price. Given these risks and any other unexpected occurrences, I would abandon my bullish stance should the company’s share prices drop below the support zone.

Conclusion

Based on this analysis, VTS appears to be on a strong upward momentum, which I believe is about to break above the resistance zone of $25.75. In light of rising demand, the company’s recent acquisitions will propel a stronger upward trend, which should gain steam after what I expect to be a strong Q3 2023 earnings report. Given this background, I recommend the stock to potential investors.