UPDATE: Morgan Stanley Initiates Coverage On Energen On Balanced Risk-Reward

In a report published Thursday, Morgan Stanley analyst Drew Venker initiated coverage on

with an Equal-Weight rating and $66.00 price target. In the report, Morgan Stanley noted, "Relatively balanced risk-reward under status quo; upside potential with enhanced inventory and cost reductions. Energen is investible through the cycle and would survive through a sustained downturn, in our view. On an absolute basis we see positive risk-reward (1.8:1 upside to downside); however, this skew is comparable to peers. The company has a superior balance sheet which is offset by shallower high rate of return drilling inventory which drives an in line multiple relative to its Permian peers. "We would be more positive and see incremental upside potential (to our bull case) through: 1) reductions in well costs and LOE (operating costs), 2) expansion of high quality drilling inventory (through exploration/delineation drilling or organic leasing),and 3) successful testing of additional zones in the Midland Basin or confirmation of higher density drilling. All three of these are plausible, but we would like to see progress on these fronts before using them as the basis for valuation." Energen closed on Wednesday at $64.64.