Solid Capital Returns Give This Texas Oil Co. a Buy Rating

Source: Leo Mariani  (3/6/24)

Solid returns of capital, including dividends and buybacks, higher production growth vs. peers, and discounted valuation vs. Permian peers, are the reasons Permian is rated a Buy, according to a Roth MKM research note. 

Of this decision, Mariani stated, “We rate Permian Resource a Buy due to its solid returns of capital, including dividends and buybacks, higher production growth vs. peers, and discounted valuation vs. Permian peers.”

Mariani noted that, all in all, he anticipates that the company will have a more positive outlook than its peers do today. 

Part of this valuation came from the news that Permian said it would be redeeming US$356 million of its Senior Notes (of which it has 6.875%), due in 2027. The company reported that it would be redeeming this on April 5 of this year. 

Payment of the notes will be made by cash the Permian already has as well as borrowing from its credit. 

Mariani commented, “Redeeming the bonds will save PR around US$24.5 million in interest expense once any credit facility borrowings are paid back with free cash flow.”

The analyst also pointed out that Permian’s co-CEOs had previously given up some stock during the last equity deal. The co-CEOs had sold 4 million shares in the deal. However, the co-CEOs stated that they are both dedicated to keeping at least 12 million shares each. Mariani opined that this is close to current ownership levels.

With his Buy rating, Mariani also gave Permian a target price of US$17, stating, “Our US$17 price target for PR is based on a 4.8x multiple of our 2024 DACF estimate, which is based on US$77 WTI oil and US$2.75 HH gas. Impediments to our target include lower-than-expected commodity prices and failure to hit production targets.”

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Disclosures for Roth MKM, Permian Resource Corp., March 6, 2024

Regulation Analyst Certification (“Reg AC”): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures: The price target and rating history for Permian Resources Corp. prior to February 1, 2023 reflect MKM’s published opinion prior to the acquisition of MKM Partners, LLC by Roth Capital Partners, LLC.

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