PXD Update - May 24
Posted: Fri May 24, 2019 8:44 am
TPH Morning Notes 5/24/2019
PXD Stock Thoughts
Stock in show me mode regarding cost/efficiency initiatives; remains a LT buy
Sector: NAm E&P | Ticker: PXD | Recommendation: BUY | Target: $211 | Close: $145.58
After materially outperforming large-cap growth peers YTD, PXD has underperformed since the somewhat turbulent earnings call (-7% vs. peers -3%).
We see the stock likely remaining in a holding pattern as the company now must deliver on stated goals of reducing cost (G&A already underway) and improving capital efficiency to more closely align with peers.
On the asset divesture front, PXD's stake in Targa's Midland processing system should fetch a healthy valuation given its growth profile (TPHe $750MM+) while also freeing up ~$125MM of annual capex. However, we suspect the market will ascribe little credit to the drill-co structure management alluded to, even though it may preserve long-term value by retaining leases on lower quality acreage.
Ultimately, we believe management may need to carve off a larger portion of the company's core position if bringing forward inventory value is an ultimate goal (TPHe majors would be interested in a cash bid).
Near-term, we model in-line Q2 oil vs. Street at 206.5mbpd but higher capex of $855MM vs. $821MM as infra spend likely rebounds. Though PXD is now trading closer to peers at 5.2x 2020 EV/EBITDA (incl. cost initiatives) vs. growth large-caps 5x with slightly higher oil growth of ~15%, its FCF yield still lags at 3% vs. peers at 6%. Name remains a longer-term Buy on inventory depth, however we prefer other Permian large-caps/EOG for now.
PXD Stock Thoughts
Stock in show me mode regarding cost/efficiency initiatives; remains a LT buy
Sector: NAm E&P | Ticker: PXD | Recommendation: BUY | Target: $211 | Close: $145.58
After materially outperforming large-cap growth peers YTD, PXD has underperformed since the somewhat turbulent earnings call (-7% vs. peers -3%).
We see the stock likely remaining in a holding pattern as the company now must deliver on stated goals of reducing cost (G&A already underway) and improving capital efficiency to more closely align with peers.
On the asset divesture front, PXD's stake in Targa's Midland processing system should fetch a healthy valuation given its growth profile (TPHe $750MM+) while also freeing up ~$125MM of annual capex. However, we suspect the market will ascribe little credit to the drill-co structure management alluded to, even though it may preserve long-term value by retaining leases on lower quality acreage.
Ultimately, we believe management may need to carve off a larger portion of the company's core position if bringing forward inventory value is an ultimate goal (TPHe majors would be interested in a cash bid).
Near-term, we model in-line Q2 oil vs. Street at 206.5mbpd but higher capex of $855MM vs. $821MM as infra spend likely rebounds. Though PXD is now trading closer to peers at 5.2x 2020 EV/EBITDA (incl. cost initiatives) vs. growth large-caps 5x with slightly higher oil growth of ~15%, its FCF yield still lags at 3% vs. peers at 6%. Name remains a longer-term Buy on inventory depth, however we prefer other Permian large-caps/EOG for now.