Parsley Energy Initiated Bullish At Imperial Capital

Imperial Capital has started coverage of

Parsley Energy IncPE

with an Outperform rating and $34 target price, citing the company as experiencing the highest oil growth in its peer group and one of the lowest cost structures. Furthermore, the company has prime acreage in the Midland and Delaware basins.

"PE's activity in the Midland Basin has resulted in improving efficiencies and peer leading IRRs, while early Delaware Basin results show similar promise," analyst Kim Pacanovsky wrote in a note.

Further, Pacanovsky said, "Investors should focus on companies with the lowest breakeven/highest IRRs in combination with a strong balance sheet" given the Brexit effect and volatile commodity markets.

"We believe Parsley Energy is among those companies," Pacanovsky highlighted.

Parsley has a "lean" balance sheet, with $821 million of pro forma liquidity. The analyst said the company's hedging strategy protected it from the fall in crude prices, which also resulted in lower service costs.

"In fact, at our estimated year-over-year (yoy) crude growth of 69 percent for 2016, we believe it will far outpace its peers on oil growth. With liquidity, a low cost structure, smart hedges, and no finger on the pause button, we believe PE has all the ingredients to continue to outperform the group," Pacanovsky continued.

The analyst expects EPS of ($0.12) for 2016 and $0.54 for 2017 and EBITDA of $248.1 million for 2016 and $505.5 million for 2017.<?p>

In addition, the price target of $34 represents a potential upside of 24 percent over Monday's closing price of $27.32.

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