Permian Resources (PR) Valuation Update - Nov 7

[dan_s]

At the time this was posted PR was trading for $15.06.

I have updated my forecast valuation model for PR's strong Q3 results that beat my forecast and for their updated guidance. I have a HIGH level of confidence in my model for PR, but they consistently exceed their production guidance.

My valuation increases by $0.50 to $23.00 per share.

PR is an Aggressive Growth company, primary through M&A, but their organic growth is also impressive.
Year over year production: 56.6% in 2022, 103.5% in 2023 thanks to the merger with Earthstone Energy that closed 11-1-2023, and they are on pace for more than 75% production growth in 2024.
On this morning's conference call they said they would not provide production guidance for 2025, but it is a good bet that it will exceed the 7% YOY growth that I'm using in my forecast model. They will be adding some bolt-on accretive acquisitions in the Delaware Basin, which are not considered in my forecast.

TipRanks: "In the last 3 months, 15 ranked analysts set 12-month price targets for PR. The average price target among the analysts is $18.15." This morning six of them adjusted their price target to $20, $20, $18, $18, $18 and $14 by Subash Chandra at Benchmark Co. < Subash rates PR a BUY even though his price target is lower than the current share price. My take is that his firm is forcing him to use much lower oil prices in his forecasts.

If WTI does average $75/bbl in 2025, PR should generate over $3.8 billion ($4.78/share) of operating cash flow next year with close to $1.8 billion of free cash flow because they said their 2025 D&C capex will be approximately $2 billion, which is what it was this year. If so, I expect PR to raise their dividends next year unless they make some big accretive acquisitions.

Bottomline: PR holds some of the most valuable leasehold in the world. Well level economics are outstanding in the oil-prone areas of the Delaware Basin.