In a research report dated Aug. 21, 2017, ROTH Capital Partners noted it revised its 12-month target price on Earthstone Energy Inc. (ESTE:NYSE.MKT), which “operates in the upstream segment of the oil and natural gas industry in the United States.” This adjustment was due to its new estimates that account for “the transformative changes ESTE underwent as a result of the closing of the Bold Energy transaction,” wrote analyst John White.
The bottom line is “there is considerable upside in the stock from present levels, 78% using our new $16 price target,” he purported. “ESTE also represents attractive relative valuation compared to other Permian-focused names.”
Whereas ROTH’s target price for Earthstone went down, to $16 from $19, “this was due entirely to our lower crude oil price forecast,” White explained. “Our valuation is based on a net asset value analysis.”
With the Bold deal closed, Earthstone benefits from combined assets, said the analyst. “ESTE’s Proven reserves increased an impressive 446% from 12.1 MMboe at Dec. 31, 2016 to 66.1 MMboe.”
As for production, “guidance is now pointing to a 2017 exit rate of 10.5–11.5 Mboe/day, an increase of 132% using the midpoint of the guidance,” reported White. In comparison, the company’s “actual Q1/17 production was 4,735 boe/day.”
White cited Earthstone’s leadership as having a proven track record. “In our 10-year relationship with this management team, we have witnessed it successfully operate wells and production in the Permian Basin,” he added. “We expect ESTE’s Midland Basin wells to be drilled and completed at or under the planned well costs and comparable to other successful operators in the area.”
Finally, potential divestitures by this energy company “would add to liquidity and also likely lower lease operating expense and slightly lower general and administrative expense,” noted White. Earthstone has stated it’s in the process of divesting of small, noncore assets and is considering doing the same with its Bakken nonoperated assets.
ROTH has a Buy rating and $16 target price on Earthstone Energy, which is currently trading at about $8.99 per share.
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