PDC Energy (PDCE) Update - April 19

[dan_s]

PDCE closed at $75.87 on April 19, up more than 50% YTD.

TipRanks: Since April 2nd three highly respected energy sector analysts have adjusted their price targets to $84, $86 and $114 (Stifel Nicolaus).

I have adjusted my forecast/valuation model for the increased price outlook for natural gas and NGLs. My valuation increases by $6 to $114 per share.

PDC will be closing the Great Western Acquisition within a few weeks. It will increase their production my ~55,000 Boepd (42% oil, 33% natural gas and 25% NGLs). It will push PDC's production over 250,000 Boepd and be immediately accretive to free cash flow. I expect the closing to draw a lot of attention to this stock.

Assuming the acquisition closes in mid-Q2, PDC's FCF from operations should be over $1.9 billion. < It really doesn't matter when the deal closes because the operating cash flow from the Effective Date to the Closing Date will go to PDC as a purchase price adjustment (reducing the cash portion of the purchase price at closing.)

If their Q1 results and updated guidance confirms my forecast model assumptions, a higher valuation multiple will be justified. My operating cash flow per share forecast is $34.62 for 2023 and a valuation multiple of 5X operating cash flow per share is a reasonable 12-month price target.