Synergy Resources Is A Pure Play At A Discount

Credit Suisse has started coverage of
Synergy Resources CorpSYRG
with an Outperform rating and a price target of $9, representing a potential upside of 53 percent versus the group at 26 percent upside.

After the company's acquisition of 33,100 net acres within its core Greeley Crescent development area from Noble Energy, Inc. NBL in May of this year, Synergy now estimates it has over 1,000 gross longer lateral drilling locations in the Greeley Crescent development area alone.

"This represents —10 years of core inventory assuming a more rapid 2017 drilling program calling for 68 gross Mid-Length (ML) wells and 34 gross Long-Length (LL) wells," Mark Lear wrote in a note.

Meanwhile, the company also retains additional inventory within its 47,000 total net acres in the Wattenberg Fairway. Another 52,000 net acres in the Northeast Extension area signifies "further upside potential in an improved commodity price environment."

Related Link: Deutsche Bank Energy Summit Begins Today

"SYRG's current drilling and completion schedule should drive 74 percent '17(16 yoy production growth, which when coupled with the sizable undeveloped acreage acquisition drives best-in-class multiple compression relative to the broader E&P group and Wattenberg peers," Lear highlighted.

"Specifically, our estimates call for a two year production CAGR of 67 percent, which should drive multiples down from 22.0x in 2016 to 6.2x in 2018 (EVIEBITDA at the futures strip)," Lear continued.

In addition, the analyst pointed out that the company's leverage stays sub 2.0x in 2017 and compresses further to 1.7x in 2018 when again assuming futures strip pricing.

At time of writing Wednesday, shares of Synergy were up 4.76 percent on the day at $6.16.

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