Goldman: Memorial Resource Development Has 28% Upside

• Memorial Resource Development Corp MRD shares have risen 12.55 percent over the past three months, from a low of $14.80 on July 27.
• John Nelson of Goldman Sachs has upgraded the rating on the company from Neutral to Buy, while raising the price target from $20 to $23.
• Nelson believes that the stock offers favorable risk-reward, with 28 percent upside due to the recent acquisition, potentially higher production and resumption of delineation unlocking shareholder value.

Analyst John Nelson expects 10 percent upside to the consensus expectations for production in 4Q15, as well as Memorial Resource “guiding the market towards the high-end of MRD’s full-year range,” which would “positively surprise investors.”

In addition, Nelson expects the company’s recent acquisition to be accretive by more than $5/share by mid-2016. The shares have been mostly flat since Memorial Resource announced the expansion of its acreage position.

According to the Goldman Sachs report, “[M]anagement was confident that acquisition locations should provide similar rates of return as core Terryville.” The company is expected to drill 6 to 10 wells on its acquired properties through 2016, and Nelson expects the robust initial activity to drive positive revisions in the consensus NAV.

“MRD has stated a desire to resume delineation activities in 2016. We see "un-risked" value at $30-$35/share underscoring – in our opinion – MRD’s compelling risk-reward profile,” Nelson added.