RSP Permian's New Deal Looks Good Under Even The Most Conservative Assumptions

Canaccord Genuity maintained its Buy rating and raised its price target on RSP Permian Inc RSPP saying the recent Silver Hill acquisition is accretive even on conservative assumptions.

"We believe RSPP's acquisition bolsters the bull case going forward, despite paying what was on an acreage basis the highest price thus far in the Delaware. The company now enters one of the best parts of the basin accretively while maintaining a relatively clean balance sheet and improving its debt-adjusted cash flow growth trajectory," analyst Sam Burwell wrote in a note.

"While we had anticipated very solid production growth from RSPP in 2017 and 2018, the Silver Hill acreage substantially bolsters the depth of high quality locations for the years beyond," Burwell continued.

The analyst added about $525 million for the existing production (15 MBoe/d at $35K/flowing boe) suggests the deal is easily accretive despite the eye-catching price tag.

The company believes its best opportunities are in the upper Wolfcamp zones, the X/Ys and the A shale benches to start. The focus will be primarily on the Loving. The analyst calculated IRRs of about 35 percent on these locations at current strip.

At time of writing, shares of RSP Permian were down 0.21 percent to $42.11.