Parsley Energy Is KeyBanc's Latest Bull Idea

In a report published Thursday, KeyBanc analyst Chris Stevens initiated coverage of

with an Overweight rating and $21 price target given the company's favorable exposure to the core of the Wolfcamp A&B. According to Stevens, Parsley Energy has a "sizable" acreage and inventory position of more than 10 years that allows it to be "more selective" when it comes to acquisitions and avoiding paying for companies at "sky-high valuations." Instead the company was able to add approximately four thousand net acres and extend the average lateral length of its inventory by 10 percent to six thousand since the start of the year. Stevens continued that Parsley Energy's acreage ranks as "some of the better" acreage in the Permian, especially for the Wolfcamp A&B. The analyst estimated the company's risked inventory has a weighted average internal rate of return of 31 percent at strip pricing and a breakeven price close to $42 per barrel, ranking the company has third among its Permian peers. In fact, the company's implied acreage valuation is approximately $34k per acre, below recent acquisitions in the Permian and "well below" some of its peers. As such, the company has plenty of upside to its net asset value. Looking forward, Stevens stated that Parsley Energy can grow its production by 37 percent in 2016 and 20 percent in 2016 which compares favorably to its peers at 17 percent and 16 percent, respectively. Bottom line, the company is attractive given its "highly prolific" acreage position and ability to increase activity given attractive returns which is further supported by a "strong" balance sheet and "solid" hedge positions.