Parsley Energy Named A Top Pick At Morgan Stanley, Positive On Company's Multiple Expansion

The brokerage also raised its price target on the Permian producer by $4 to $48, saying few investors appear to see material upside to the Street's growth estimates.

"The consensus view is that PE has materially outperformed and is now expensive, and that its superior growth is reflected in the stock. We disagree and would be buyers here," analyst Drew Venker wrote in a note.

Consensus production estimates have been revised upward and are now in line with the low end of Parsley's scenarios through 2018 at 63 MBoe/d (30 percent two-year CAGR for 2017–2018). The analyst expects upward revisions to consensus production estimates to continue, because activity levels are likely well above the Street's assumptions.

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Meanwhile, the analyst is slightly above the high end of Parsley's growth scenarios but on higher activity levels in 2018. The high end of PE's growth scenarios implies 95 MBoe/d of production in 2018 (60 percent two-year CAGR for 2017–2018), assuming it adds three rigs a year.

Venker projects the company will add two rigs in 2017 and six more in 2018, averaging four rigs a year and implying much higher spending than Parsley's own scenario.,/p>

"If PE traded in line with Permian peers on 2018e EBITDA, it would imply a share price of $48–49, or 42 percent upside from current levels. PE trades at 6.1x2018e EBITDA vs. the Permian peers at 8.4x, a 25–30 percent discount. Our new price target of $48 implies 8.2x2018e EBITDA, a slight discount to peers," Venker added.

Shares of Parsley Energy closed Monday's trading at $33.78, while the revised target price of $48 implies a potential upside of 42 percent.

At time of writing Tuesday, Parsley was up 0.77 percent at $34.04.

Full ratings data available on Benzinga Pro.