Permian Resources (PR) Valuation Update - Oct 18

[dan_s]

PR closed today at $15.24.

TipRanks: "In the last 3 months, 11 ranked analysts set 12-month price targets for PR. The average price target among the analysts is $17.31. The 11 price targets range from $15 to $20."

Here are the last three price target updates:
> Biju Perincheril at Susquehanna (rated 5-Stars by TipRanks) updated his forecast on 10-18-2023. He rates it a HOLD with a price target of $16.
> Neal Dingmann at Truist Financial (rated 5-Stars by TipRanks) update his forecast on 10-16-2023. He rates it a BUY with a price target of $20.
> Josh Silverstein at UBS (rated 4.5 Stars by TipRanks) updated his forecast on 10-4-2023. He rates it a HOLD with a price target of $16.

Since Earthstone and Permian Resources are in our Sweet 16, I have a HIGH level of confidence in my Proforma Forecast Model for PR.
> The merger with Earthstone should close on October 31st.
> Post-merger production will be over 310,000 Boepd.
> 2024 production should be 330,000 Boepd (approximately 47.4% crude oil, 29.4% natural gas and 23.2% NGLs)

Here is how my forecast compares to TipRanks' consensus. Keep in mind that most of the 11 analysts that have submitted forecasts to TipRanks are using much lower oil prices than we have today in their forecasts.
My forecast / TipRanks for 2024
> Revenues: $5,904 million / $5,500 million
> Net Income per share: $2.29 / $2.13
> Operating cash flow per share: $5.06 / $4.54

My current valuation of PR is $19.00 per share, which is just 3.75 X my post-merger operating cash flow per share forecast. After the deal closes and I see actual Q3 results for both companies a 4X valuation multiple should be justified.

After the merger closes and PR provides updated guidance a higher valuation multiple will be justified. A lot of the Wall Street Gang will not look at post-closing forecasts until deals of this size close. This merger is a BIG DEAL and it creates a "Screaming Takeover Target".

Since this is an all-stock merger, the post-closing balance sheet is going to be strong enough to justify a 5X operating cash flow valuation multiple.