Credit Suisse Raises Concho Resources Price Target Following Acquisition Of Midland Basin Acreage

Credit Suisse analysts maintained its Outperform rating on Concho Resources Inc CXO and boosted its price target from $145 to $154.

The analysts believe the company stands to gain from the acquisition of 40,000 net Midland Basic acres from Reliance Energy for $1.625 billion.

In a note, the analyst said, "The 40k net acres CXO is acquiring is approximately split evenly between Midland, Andrews, and Ector Counties and comes with 10 Mboe/d of production. This transaction continues CXO's trend of funding portfolio high-grading deals at least partially with equity, as the funding split on this deal totaled $1.1bn cash / $525mm equity."

The brokerage believes the acquisition provided continued confidence in the company since it would become one of its strongest operating areas. Another interesting aspect is that the company gets 8,500 net acres with depth rights of below 10,000. This was based on a recent EGN presentation.

Following the acquisition, the analyst adjusted its EPS projection to reflect factors such as reduced interest costs after the $600 million redemption of senior notes of 2021, ten Mboe/d of acquired production, which is likely to translate into 67 percent oil.

The brokerage believes that CXO deserves premium valuation due to its Midland Basin and Delaware project inventory.