Stifel Expects Investor Perception Of Alta Mesa Resources To Improve, Initiates With Outperform

Alta Mesa Resources Inc AMR has been unfairly punished for non-related industry developments in the eastern Andarko Basin STACK, according to Stifel. 

The Analyst

Analyst Derrick Whitfield initiated coverage of Alta Mesa with an Outperform rating and $13 price target.

The Thesis

From a net asset value perspective, Alta Mesa's enterprise value implies that its upstream business trades for proved reserves value, Whitfield said in a Thursday note. This assumes a "reasonable valuation" for Kingfisher Midstream, the analyst said. 

Given the enterprise value of the company is $3.3 billion, Whitfield said investors get a free call on the incremental value of the upstream business, as the midstream business is valued at $1.8 billion and the proved resource at $1.3 billion.

AMR's acreage has an estimated developd value of $3.2 billion and undeveloped value of $1.3 billion, the analyst said.

Stifel projects more than 10 percent net asset value upside potential to its upstream appraisal. 

AMR is guided by a "top-shelf" management team, with a strong reputation in exploration, execution and value creation, Whitfield said. 

Stifel views AMR as offering best-in-class debt-adjusted production per share and multiple contraction across its smid-cap coverage, with DAPPS being a statistically significant measure for smid-cap stock performance.

"Finally, we believe the IPO of KFM has the potential to re-rate AMR and narrow the gap we see in the stock's asset value," Whtifield said. 

Perception of the STACK will improve with time as investors assess the impacts of field development throughout conference season, the analyst said. 

The Price Action

Alta Mesa shares have dropped about 28 percent over the past year, with much of the weakness driven by a steep pullback in late January.

The stock was up 3.72 percent at the time of publication Thursday. 

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