What’s So Attractive About Parsley Energy?

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Parsley Energy Inc. (NYSE: PE) traded at an all-time high of nearly $35 on Monday. That may not seem like such a big deal, but the unusual thing about Parsley is that the company didn’t come public until May of 2014, just three months before the floor began falling out of the oil market.

The company followed the rest of the industry down the slippery slope, eventually halting its slide at around $11.50 in December of 2014. As recently as February, shares traded at less than half Tuesday’s closing price of $33.74.

Earlier this week, Parsley issued an underwritten public offering of 7.25 million new shares, raising gross proceeds of about $243 million, and placed another $200 million in senior unsecured notes due in 2024. The company used the funds to pay $400 million in cash for acreage and other royalty and drilling interests in the Midland (Permian) Basin.

In a note to investors Tuesday, Nomura analyst Lloyd Byrne boosted the firm’s price target from $31 to $36 per share with a Buy rating. Here’s Nomura’s rationale:

Our $36 target price for Parsley Energy, Inc. (PE) is based on a 19.6x [cash flow per share (CFPS)] multiple applied to our 2017/2018 average CFPS estimate $1.84. …

Going forward, we expect [Parsley Energy] to continue to be proactive in adding contiguous acreage where possible.

The Permian Basin has been, and continues to be, the hot spot for new drilling. Parsley concentrates on the Permian and sees the potential for a total of six rigs in the region next year, with one possible in the acreage just purchased.

Other analysts’ reactions to the Parsley announcements include the following:

  • Imperial Capital raised its price target from $40 to $42 with an Outperform rating.
  • KLR Group upped its price target from $43 to $44 with a Buy rating.
  • Raymond James rates the stock a Strong Buy and raised its price target from $43 to $44.
  • RBC lifted its price target from $35 to $39 with an Outperform rating.

Shares traded at $33.92 in the noon hour Wednesday, in a 52-week range of $13.29 to $34.68. The 12-month price target on the stock is $38.31 and may not include these changes yet.