RSP Permian (RSPP)

[dan_s]

John White at Roth Capital issued an update on RSPP this morning. I am high on RSPP and think it will be a big winner for us in 2017. My current valuation for RSPP is much lower than John's valuation because I'm more conservative on the companies that I have less "history" with. RSPP is the newest member of the Sweet 16, added 8/12/2016. - Dan

John's comments below:

Our price target is $64.50 and our rating is Buy.

We are updating our 4Q 2016 estimates to reflect actual crude oil and natural gas prices during the quarter. WTI crude oil averaged $49.29/bbl, just a tad under our projection of $50.00/bbl. Henry Hub natural gas averaged $3.18/ MMBtu, slightly higher than our projected $3.00/MMBtu. The slightly lower oil price, partially offset by the slightly higher natural gas prices, leaves our 4Q 2016 operating diluted EPS estimate unchanged at $0.05. Our CFPS estimate moves slightly lower, from $0.62 to $0.60, as does our projected EBITDA, from $90.7 million to $88.2 million.

RSPP’s recently announced agreements to acquire Silver Hill Energy Partners, LLC (SHEP I) and Silver Hill E&P II, LLC, are, in our opinion, transformative acquisitions. The transactions add substantial scale on all the critical metrics. The deal: 1) increases RSPP’s current production by about 43% from approximately 35,000 BOE per day to about 50,000 BOE per day, 2) boosts net surface acreage by 68%, from about 60,700 to approximately 101,700, and 3) raises net horizontal locations 115%, from approximately 1,700 to about 3,650.

And this management team has, in our view, persevered balance sheet strength through the acquisition process. The equity component of the acquisition financing, together with the issuance of the new 5.25% Senior Unsecured Notes due 2025, leave RSPP with, in our view, strong liquidity and credit metrics.

Shares are trading well below our target price and as such, present a compelling opportunity, in our view. RSPP has executed on its business plan for a number of consecutive quarters. RSPP has, in our opinion, some of the highest quality shale acreage in the U.S., which is being worked by, again in our view, a high quality technical and management team.