Morgan Stanley’s Drew Venker believes Parsley Energy Inc PE deserves to trade at a significant premium to peers, given its peer-leading growth, strong management and high quality assets.
Venker initiated coverage of the company with an Overweight rating and price target of $39.
Peer-Leading Growth
The company’s “hedge portfolio and low leverage limit downside and allow for participation in a recovery,” the analyst mentioned.
Venker believes Parsley Energy will see multiple expansion if the company continues to beat the consensus expectations or if it grows its drilling inventory through accretive acquisitions and leasing.
The analyst also believes both possibilities are likely over the coming 12 months, stating, “If Parsley's assets continue to perform in line with 2016 results, it should deliver growth an order of magnitude greater than expectations.”
Downside Protection
Parsley Energy has put-spreads on 90 percent of its remaining production for 2016 and more than 40 percent of its production for 2017, which is likely to limit downside to oil price realizations, without capping exposure if oil prices rebound.
According to the Morgan Stanley report, “The strong performance of PE's Midland Basin assets seen to-date could support sharp positive revisions and drive significant outperformance over the next 12 months.”
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