Williams Capital Recommends A Hold On Parsley Energy, Despite It Being 'A Rare Growth Story'

Williams Capital initiated coverage on Parsley Energy Inc PE with Hold rating and $37 price target.

The analysts expect strong 2016 and 2017 total production growth of 69.5 percent and 41.1 percent, respectively, compared to the Permian Basin peer average of 14.4 percent and 17.7 percent, respectively.

"More importantly, it is worth noting that we estimate PE to grow oil production by 88.5 percent in 2016 and 45.3 percent in 2017," wrote the analysts. They believe the current premium valuation is justified given the hyper-growth rate, without stressing its balance sheet, but find the valuation sufficient and recommend investors not to chase the run up, rather wait for a pullback.

Shares are trading at 13.5x and 8.3x EV/EBITDA for 2017 and 2018 compared to its peers' average multiples of 12.1x and 8.2x, respectively. The $37 price target implies 2017 and 2018 EV/EBITDA metrics of 14.6x and 9.0x, respectively.