Energy Business

Why Stifel Is Raising Price Targets on 5 Top Permian Stocks

Lee Jackson

The new level for acreage prices in the Permian Basin of West Texas and New Mexico was raised last week when RSP Permian Inc. (NYSE: RSPP) exploded on Wednesday on news that Concho Resources Inc. (NYSE: CXO), was buying the exploration and production company in an all-stock transaction worth a tidy $9.5 billion. The deal price, which includes $1.5 billion in debt, is expected to close in the third quarter of this year, pending regulatory approval. It was reported that the deal already was unanimously approved by both boards of directors.

The purchase will make Concho the biggest shale oil and natural gas producer in the Permian Basin. The company said it would have the area’s largest drilling and hydraulic fracturing operation, 27 rigs, and a reach of 640,000 acres.

It looks as though the analysts at Stifel are taking a cue from the acquisition as they are raising price targets on some of the biggest players in the Permian Basin. We spotted five top companies rated Buy at the firm in which the analysts are moving the targets.

Cimarex Energy

This is a top play for investors looking to the Permian Basin. Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States.

The company is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions.

Cimarex has a diversified base of high-quality production and attractive drilling opportunities. It should be noted that hedge funds have initiated sizable new positions in the company over the past year, and like its brethren in the Permian, many consider the company a very solid takeover target.

Cimarex investors are paid a small 0.3% dividend. The Stifel price target for the stock was raised to a stunning $201 from $185. The Wall Street consensus price target was last seen at $142.73. The shares closed most recently at $93.50 apiece.

Concho Resources

This company is buying RSP Permian, and while pricey, most on Wall Street like the deal. Concho Resources is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.

It offers investors a unique combination of investment themes, including valuation, rate-of-change and resource expansion themes. The company is the largest acreage holder of the publicly traded Permian large-caps and provides investors peer-leading exposure to three of the most impactful catalysts across the Delaware Basin, including the Wolfcamp XY, Wolfcamp D and Bone Spring Shale.

Stifel boosted its price target from $195 to $200. The posted consensus target is at $181.85, and the shares closed out last week trading at $150.33.