Permian Resources' Landmark Acquisition: Analyst Sees 80% Production Boost And Potentially Undervalued Synergies

Susquehanna analyst Biju Perincheril reiterated a Neutral rating on Permian Resources Corporation PR, raising the price target from $11 to $14.

Permian Resources announced a $4.5 billion acquisition of Earthstone Energy, Inc. 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.