Preliminary Earnings Update
Rating: Buy, Reducing Price Target by $1 to $14
Parsley Energy (NYSE:PE) reported third-quarter 2020 adjusted EPS of $.22 per share, beating consensus by $.01 per share. Revenues for the third quarter totaled $447.4 million, increasing by approximately 103% from the prior quarter and beating consensus by $2.4 million.
The sequential improvement in revenues resulted from higher realized prices during the third quarter, offset by flat volume growth.
Adjusted EBITDAX was $290.2 million and rose 37% when compared to the second quarter of 2020.
For the third quarter of 2020, the company produced an average of 185.2 MBoe per day, unchanged from the prior quarter. Unhedged average realized oil prices for the quarter were $37.19 per barrel vs. $18.30 per barrel reported in the second quarter of 2020.
Acquisition by Pioneer Natural Resources
On October 19, 2020, Pioneer Natural Resources (NYSE:PXD) announced a definitive agreement to acquire Parsley Energy (Buy Rating: PE) in an all-stock deal valued at $4.5 billion, a 7.9% premium to October 19, 2020 closing price. Parsley Energy will receive a fixed ratio of .1252 shares of Pioneer Natural Resources common. The acquisition is expected to close within the first quarter of 2021.
Total consideration for the deal is approximately $7.6 billion, including $3.1 billion in Parsley debt. On an EV/LTM EBITDA basis, the transaction is valued at 5.85x using the 2021 consensus EBITDA estimate of $1.3 billion. The deal multiple is dramatically below our target multiple of 7.0x based on our 2021 estimated Adjusted EBITDAX of $1.24 billion.
We are maintaining our Buy rating but reducing our price target for Parsley Energy by $1 to $14 per share. Our price target is based on our 2021 estimated Adjusted EBITDAX of $1.2 billion using a 7.0x EV/EBITDAX target multiple. For 2021, our estimates assume a slight improvement in both volume growth and oil prices.