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Susquehanna analyst Biju Perincheril reiterated a Neutral rating on Permian Resources Corporation (NYSE:PR), raising the price target from $11 to $14.
Permian Resources announced a $4.5 billion acquisition of Earthstone Energy, Inc. (NYSE:ESTE) in an all-stock transaction.
Perincheril thinks the deal increases PR's production profile by ~80% to 300 Mboe/d and is accretive across all metrics.
Following the deal, the analyst is currently forecasting an 11% increase to FCF/sh in 2024.
The transaction more than doubles its net acreage position. However, only about 25% of the land package is near Permian's existing position in the Delaware Basin. The remaining acreage is located in the Midland Basin, which is not a focus for PR, the analyst adds.
The company expects to harvest FCF from the Midland and potentially monetize the asset in the future.
Management expects to realize operational synergies of ~$115 million. However, the analyst believes these initial expectations could be exceeded as the PR team leverages strategies that have yielded significantly better D&C efficiencies and low LOE/boe for its operations.
Following the deal, the analyst raised 2024/25 production to 307/310 Mboe/d from prior 175/174 Mboe/d, respectively.
Perincheril raised the 2024 adjusted EPS estimate to $1.98 from $1.70. For 2025, the analyst increased the adjusted EPS estimate to $2.12 from $1.73
The analyst raised the debt-adjusted cash flow multiple to 3.5x from 3.1x due to the greater operational scale.
Price Action: PR shares are trading higher by 2.01% to $13.44 on the last checked Tuesday.
