Permian Resources (PR) Price Target - June 26

[dan_s]

Update from Neal Dingmann at Truist Financial. He rates PR a BUY with a price target of $19.00. My current valuation is $16.50.

At the time of this post PR was trading at $10.50

Permian Resources Corporation (PR)
No Substitute for Strong Operations and Relationships as our Peer Leading Price Target Increases
by Neal Dingmann 6-26-2023

After spending much of Friday with the Permian Resources team, the strong operational
expertise and customer relationships were evident. We were impressed with PR’s unique
relationships with landowners and oilfield services that only add to our confidence in
upcoming results. We slightly increase our production based on potential upcoming D&C
timing pushing estimates through 2024 higher, and causing our price target to increase to
$19 from $18. We maintain our Buy rating on PR shares.

Home Field Advantage
PR remains one of the few companies with its headquarters near all of its operations. We
believe PR not only has some of the best company chemistry, but also the team has great
relationships with the oilfield services it uses along with the landowners of its existing assets.
While we have not changed our forecast of six rigs for the remainder of the year, we believe
there is good chance the 150 well program could be completed with five rigs before the year
is over. Further, there are a number of pads such as the Jackie State 183 we visited where
operations appear to be going quite well. We continue to forecast a mostly 50/50 split in
the Texas/New Mexico deployment of rigs with PR’s New Mexico rigs deployed at its oil-
weighted Delaware North Oil and Delaware Slope plays.

Continued Solid Shareholder Return
We continue to anticipate PR to pay its $0.05/share quarterly base dividend and nominal
variable dividend with the key shareholder return being its potential stock buybacks. While
we do not believe all PE holders will actively sell down positions, potential exists for an owner
to be active and estimated year-end leverage of just ~0.5x.

Updating Estimates and Raising Our Target Price to $19
While we continue to take a conservative modeling approach forecasting minimal operational
efficiencies and slightly higher OFS inflation, we believe there is a good chance PR will be
able to drop another rig and potentially experience lower costs, given likely strong continued
activity. As such, we continue to believe there is the potential that FCF increases to higher
than the 15% FCF yield we currently forecast. While quarterly results could continue to be
slightly lumpy in the coming months, we forecast slightly higher than prior 2Q23 production
with similar previous capital spend setting up for potentially better than 2023 guided results.

PR made its first variable dividend payment to go along with its continued base dividend
and opportunistic buybacks (participating in any PE sales and market dislocation). We have
updated our estimates for more appropriate volumes and costs. We increase our price target
to $19 from $18 with our new price target derived from two equally weighted methodologies,
with the first being our ’24 EV/EBITDAX multiple of 4.0x (vs. 4.0x prior and 3.8x peer group
average) applied to our 2024E EBITDAX estimate of $2,968MM (vs. $2,910MM prior and
consensus of $2,426MM) and the second being a FCF/EV Yield assumption of 13.0%