Pioneer Natural Resources (PXD) - Update

[dan_s]

One thing all of you should consider doing in 2018 is adding some of the larger companies as "Core Holdings" in your portfolio. I know a lot of you avoid them just because they have high share prices. A high share prices does not equal higher risk, nor does it equal less upside. Our "Elite Eight" maintain higher share prices for a reason; they are Rock Solid companies with lots of extremely valuable leasehold. These are the companies that Wall Street fund managers will put money into first. They like lower risk and most of them don't know a darn thing about the upstream oil business. Plus, large-caps like PXD have high trading volume, which is very important to large fund managers.

PXD is one of the Elite Eight and if oil stays over $60/bbl, it has a lot more upside than my valuation shown below that is based on $50 WTI.

In the last 3 months, 11 ranked analysts set 12-month price targets for PXD. The average price target among the analysts is $189.64. The price targets range from $160 to $253.
PXD closed at $175.85 on Friday, December 29.

I have update my forecast/valuation model for PXD, extending it through 2019. My valuation increases by $10 to $206.00.

Things to remember about PXD:
> It is a large-cap pure play on the Permian Basin. It does have some other areas of interest, but they focus most of their drilling program on the Permian Basin.
> Cash flow from operations was approximately $2.0 Billion in 2017 and will be over $2.6 Billion in 2018, more than enough to fund an aggressive drilling program.
> There is some fear that their Permian wells were getting increasing high gas-to-oil ratios. IMO this fear is way over-blown.
> The stacked pay zones in the Permian give them decades of low-risk high-return drilling inventory.
> Production today is approximately 300,000 Boe per day (58% crude oil, 20% NGLs, 22% natural gas)
> My valuation will probably go a lot higher when the company provides production guidance for 2018 and a detailed capex program.
> My valuation will go WAY UP if WTI oil holds over $60/bbl
> All of our Elite Eight will get a BIG BOOST in reported earnings because of the lower income tax rates.

PXD recently updated their presentation. Check it out. It will help you understand why the Permian Basin gets so much attention these days.