Earthstone Energy's Acquisition Of Novo Assets Lauded By Analyst, Hikes Price Target

Stephens & Co. analyst Mike Scialla reiterated an Overweight rating on the shares of Earthstone Energy, Inc. ESTE, raising the price target to $21 from $18.

Earthstone Energy inked a deal to acquire Novo Oil & Gas Holdings, LLC, a privately-held Delaware Basin-focused E&P company, for $1.5 billion. Concurrently, Northern Oil & Gas Inc NOG penned a deal with Earthstone to acquire a 33.33% undivided working stake in the Novo assets for $500 million in cash.

The acquisition is 2024 FCF accretive and improves the depth and quality of ESTE's inventory, the analyst notes. 

ESTE plans to move one of its two Midland Basin rigs to the Novo acreage while maintaining a five-rig program.

The analyst also expects capital efficiency to improve as four of the company's five rigs will operate on high-quality Northern Delaware Basin acreage post-close. 

While financial leverage increases, it remains at a comfortable level (1.5x at YE23), Scialla adds.

The analyst raised 2024 CFPS and FCF estimates by 20% and 26%, respectively, to $8.01 from $7.31 and $386 million from $306 million.

Price Action: ESTE shares are trading higher by 1.19% to $13.63 on the last check Friday.