PE Analyst's Comments - Nov 5

[dan_s]

TPH Morning Notes 11/5/2018

PE Stock Thoughts

Valuation. Check. Assets. Check. Messaging. Check.....thrusters engaged we have lift off

Sector: NAm E&P | Ticker: PE | Recommendation: BUY | Target: $48 | Close: $24.73

Stock handily outperformed peers (+2% vs E&Ps -3%) as inflection in strategy was messaged loud and clear on the conference call. Business is maturing with a scalable Permian asset base that will prioritize returns over growth while focusing on accelerating timing of FCF generation by moderating activity which will help lower base declines over time. Given long dated core inventory depth, management is inclined to maximize well level capital efficiency over NPV per section. Use of FCF has yet to be set in stone in 2020 but we expect that if equity is trading at current levels (3.5x EV/EBITDA, 6x P/E with a 7% FCF yield), buybacks will the first call on capital. Mineral business likely to gain attention in 2019 as production on this asset grows (TPHe >$750MM value). With ~95% upside to our $48/ah NAV, “the new sheriff” incoming CEO Matt Gallagher has the opportunity to lead Parsley into one of the best performing equities in 2019.