Permian Basin Companies

[dan_s]

Energy exploration and production companies focused on the Permian Basin plunged after earnings this summer, and that's created an attractive entry point for investors, writes Stifel's Derrick Whitfield and his team.
http://www.barrons.com/articles/three-c ... yptr=yahoo


Whitfield writes that investor worries about Permian growth are overblown, that the execution risks that these stocks have to deal with are manageable, and that the Permian's "redeeming qualities" remain intact.

He notes that Permian stocks have underperformed their quality peers 15% since the second quarter, and that they're trading at parity with M&A metrics, even though they have quality advantages--all together too cheap.

He likes our Sweet 16 companies in the Permian Basin

Moreover, he sees catalysts for the group that should help them recover this quarter and beyond. From his note:

We are focused on three catalysts. First, we expect Q317 earnings to be a positive development for the sector. Assuming the current macro environment and investor focus, we expect industry to walk down 2018 activity levels. Second, we expect positive operational updates from the Permian operators in Q317. Our preliminary discussions suggest operations are on track (despite Hurricane Harvey) and completion activity is highly focused on development wells. In our view, an in-line or better quarter with strong operations would negate execution concerns. Third, we believe current valuations will attract M&A and activism. If valuations remain depressed, we expect an active proxy season next spring as investors take a more active role in portfolio management.
Whitfield writes that his top picks are biased toward the Permian and Anadarko Basins, and include Centennial (CDEV), Callon (CPE), Continental (CLR), Concho (CXO), PDC Energy (PDCE), Parsley (PE), Pioneer (PXD), WPX Energy (WPX), and Cimarex (XEC).

He also thinks that Jagged Peak (JAG), Laredo (LPI), and QEP (QEP) are attractively priced M&A options in the Permian.