Permian Resources (PR) Price Target - Jan 23

Post Reply
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Permian Resources (PR) Price Target - Jan 23

Post by dan_s »

From RBC Capital Markets: January 22, 2023
Permian Resources Corporation (PR)
Quarterly Check-Up: 4Q22

RBC Capital's Price Target is $13.00 per share with Upside Scenario of $17.00

Our view: Early into the merger, the combined company appears to be
executing operationally and financially. PR is our SMid cap focus stock due
to its assets, strategy, and performance. We think the key investor debates
are priorities with excess FCF beyond the 50% of FCF payout for shareholder
returns, appetite for share buybacks in the near-term, sponsor investor
monetizations, and exposure to Waha gas price weakness.

Key points:


• Our 4Q22 EPS/CFPS estimates decreased by $0.04/$0.02 to $0.46/$0.88, < My forecast is $0.43EPS and $0.89 operating CFPS for Q4.
mostly reflecting final benchmark commodity prices that were below
our prior oil price forecast. Our estimates compare to the $0.43/$0.94
consensus when adjusting for outliers. Our cash flow estimate includes a
~$10 million reduction related to merger costs.

• Our 2023/2024 EPS/CFPS estimates have also changed reflecting RBC's
most recent commodity deck update. Please see details in our note. We
increased our price target by $1/share to $13 reflecting our expectations
for stronger oil prices and strong operational execution.

• We model 4Q22 production at 145 Mboe/d (74.5 Mb/d oil), which is up
58% sequentially related to mostly a full quarter post the merger in late
3Q22. Our estimates are inline the guidance midpoint despite impact
from adverse weather in late December and a small asset sale.

• We expect 4Q22 capital spending of $321 million near the high-end of the
$300-325 million guidance. We calculate FCF generation of $202 million. < This is higher than my FCF forecast of $186 million for Q4.

• PR hedged 46% of oil and 39% of natural gas production in 4Q22,
resulting in a cash settled gain of $30 million.

Channel checks and investor topics:

• PR provided 2023 guidance following the closing of its merger in
September 2022. That guidance should hold and includes 150-165
Mboe/d (82 Mb/d oil) production guidance and a $1.15-1.35 billion
budget. The budget has 150 well completions with 15% YoY inflation. The
production outlook has 10% entry-to-exit organic growth. < Based on my forecast, 2023 operating cash flow should be $2,088 million ($3.80/share), so reasonable price target is 4X operating CFPS.

• Activity should be fairly balance between the northern and southern
Delaware. The target formations and areas are consistent with recent
drilling, so we have confidence in capital productivity and efficiency.

• PR recently announced asset optimization transactions that increases
core inventory and resulted in net cash. There could be similar moves
ahead, which were a hallmark of the strategy at Colgate to add value.

• The shareholder return strategy remains focused on dividends with plans
to initiate a variable payout of 50% of excess FCF starting in 2Q23. Stock
buybacks are not a priority but could be used when legacy sponsor
ownership monetizes occur. < Dividends could be over $1.00/share (~9% annual yield).

• Debt reduction remains a priority until the revolver is fully paid, which
we expect is achieved during 2Q23.

• PR plans to hold the current 7 rigs pace into 2023, but is hopeful to drop
to 6 rigs around midyear if the company can achieve targeted efficiencies
while still executing on planned activity levels.
-----------------------------
Once the dividend policy is better defined this stock should jump over 20%.
Dan Steffens
Energy Prospectus Group
Post Reply