RSP Permain (RSPP) - Update

[dan_s]

If you missed the boat and did not buy FANG when I added it to the Sweet 16, then I recommend you pick up equal shares of Parsley Energy (PE) and RSP Permian (RSPP). Both companies are about a year behind FANG, but they are growing production and proven reserves even faster.

In the last 3 months, 14 ranked analysts set 12-month price targets for RSPP. The average price target among the analysts is $45.64. Price targets range from $41 to $49.

RSPP closed on Friday, December 29th at $40.68.

I have updated my forecast/valuation model for RSPP, extending it through 2019. My valuation increases $1 to $46.00.

Things to remember about RSPP:
> It is a pure play on the Permian Basin and it is highly leveraged to the price of oil.
> All of their hedges for 2018 are collars with ceilings above $58.81, so if WTI stays over $60 this one has a lot more upside than my valuation above.
> Production growth was 90% YOY in 2017, primarily because of the acquisition of Silver Hills Energy Partners.
> My 2018 forecast is based on RSP's production guidance for 2018 of 30% YOY growth to an exit rate of over 80,000 Boe per day, but my SWAG is that they beat that by a wide margin.
> Their 2018 drilling and completion program should be fully funded by cash flow from operations.
> Lower income tax rates will push reported EPS above the current First Call estimates, which have not been adjusted since the GOP Tax Plan passed.
> Take a hard look at the RED BOX on each forecast model. Cash Flow Per Share is the best way to value an upstream oil & gas company.

This is the last of the 2017 Sweet 16 forecast models that needed to by updated. I will now update the forecast for Matador Resources (MTDR) that will be replacing CRZO in the 2018 Sweet 16.