Morgan Stanley Initiates Coverage On RSP Permian At Equal-Weight, But Sees Significant Potential Upside

While the risk-reward for RSP Permian Inc RSPP currently appears relatively balanced, there is substantial upside, backed by strong well performance and inventory enhancement, Morgan Stanley’s Drew Venker said in a report. He initiated coverage of the company with an Equal-weight rating and a price target of $43.

While the stock has positive risk-reward on an absolute basis, this is comparable to peers, analyst Drew Venker noted. RSP Permian has high quality assets and an outstanding management team. However, these positives are offset by decelerating growth.

What Needs To Improve

Venker mentioned that to get more positive on the stock, the following were needed:

1. Significant improvement in well performance, with new completion designs that boosted capital efficiency
2. Successful higher density spacing pilots
3. Accretive acquisitions that expanded drilling inventory or accelerated growth

The analyst expressed optimism regarding longer-term upside, citing RSP Permian’s “strong track record of continuously improving capital efficiency, fostering upside to growth and resource potential.”

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