WildHorse's Decline 'Makes Little Sense,' SunTrust Says In Upgrade

Wildhorse Resource Development Corp WRD, is a single-basin story and pure-play NE Eagle Ford company whose stock sold off Wednesday for no legitimate reason, according to SunTrust.

The Analyst

SunTrust Robinson Humphrey's Welles Fitzpatrick upgraded WildHorse Resource Development from Hold to Buy but with a price target lowered from $26 to $25.

The Thesis

Wildhorse Resource's 15-percent decline in reaction to its earnings report "makes little sense," Fitzpatrick said in a note.

Investors have shown some concern with capital expenditure coming in at $249 million versus the consensus estimate of $230 million. However, the $249 million figure is "not far off" the implied run-rate of the high end of management's guidance. The consensus estimate's full year 2018 of $861 million is already at the high-end of management's $765-$875 million guidance.

The analyst said management discussed oil pipes filling up, which is in reference to the Magellan and Eaglebine pipelines which are in fact getting full. However, the company can truck to Houston for $6 per barrel meant a "blow out for them is going to top out at a couple bucks."

The stock is trading at 4.3 times estimated 2019 EV/EBITDA, which is a discount to the Eagle Ford group average of 4.6 times. Even out of an " abundance of caution," the stock should be valued at $25 per share and is based on a net asset value of $42 per share minus $17 per share in liabilities.