Parsley Energy, Inc. (PE - Free Report) appears to be a solid bet based on strong fundamentals, robust financials along with healthy share price performance. Shares of Parsley have gained 15.8% in the past two years, vis-à-vis the stocks in this industry that have collectively lost 5%.
If you haven’t taken advantage of the share price appreciation yet, it’s time you add the stock to your portfolio. Analysts are also displaying bullish sentiments on the stock, as is apparent from the upward revisions in earnings estimates. The Zacks Consensus Estimate of $1.70 for fiscal 2018 and $2.50 for fiscal 2019 has been revised upward by 11 cents and 12 cents, respectively, in the past 30 days.
Currently, the industry to which Parsley belongs ranks within the top 15% (37 of 255) of all the Zacks industries. Further, the stock boasts a VGM Score of A and has a long-term earnings growth rate of 26.9%, which raises optimism among investors.
Let’s delve deeper into the factors that make this Zacks Rank #2 (Buy) stock an attractive buy.
Key Growth Catalysts
Parsley’s strategic acreage position in the low-cost Permian Basin is the foremost driving force. An extensive inventory of premium drilling locations both in the Midland and Delaware sides of the Permian Basin has been aiding in top-tier production growth since several years. The company remains committed to exploring significant growth opportunities through strategic acquisitions. Last year, it closed the $2.8-billion deal with Double Eagle Energy Permian LLC, which added 71,000 net acres to Parsley’s acreage in the Midland Basin, providing a major boost to the company’s overall acreage in the Permian Basin that now stands close to 220,000 acres.
Owing to significant resource potential and prime acreage holdings, the company’s last quarterly output recorded a year-over-year and sequential increase of 66.5% and 16.3%, respectively. Notably, during the last reported quarter, the Permian pure play player placed on production 20 and 21 gross operated horizontal wells in Midland and Delaware, respectively. Oil production in Delaware increased more than 50% sequentially on the back of strong well results. Notably, Parsley’s revenue CAGR (2015-2017) was 267% owing to solid output growth that came in at 24,792 million barrels of oil equivalent per day (Mboe/d) in 2017 compared with 8,031 Mboe/d in 2015.
In fact, Parsley Energy's quarterly oil volume has grown at the rate of 16% CAGR since 2014. This year, the company expects to generate organic oil production growth of around 50% from the 2017 level. Parsley Energy's liquids-heavy portfolio makes earnings highly sensitive to oil prices. With the macro environment expected to remain favorable and Parsley's robust operating cash margin of nearly 80%, its cash flow and balance sheet are likely to be strengthened further.
The company’s aggressive cost-control strategies have boosted its cash flow and balance sheet. In the last reported quarter, the company’s lease operating cost came in at $3.43 per barrel of oil equivalent (BOE) compared with $3.57 per BOE a year ago. As it is, the Midland-based upstream company displays healthy balance sheet with a manageable debt-to-capital ratio of around 26%, which is lower than most peers, providing it with enough financial flexibility to tap strategic growth opportunities. Parsley also fares well in the cash-flow parameter, which is a key metric to gauge the financial health of a company. The company’s cash flow in 2017 totaled 694 million in 2017, representing a CAGR (3 years) of 100.8%.
Banking on the aforementioned positives, the company is poised to carry on its momentum going forward.
Looking for Other Promising Upstream Stocks? Check These
Other top-ranked stocks in the same space include:
Bonanza Creek Energy, Inc. (BCEI - Free Report) , a Zacks Rank #1 (Strong Buy) stock, delivered positive earnings surprise in each of the trailing four quarters, with an average beat of 215.36%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Concho Resources Inc. (CXO - Free Report) , a Ranked #1 stock, surpassed estimates in each of the trailing four quarters, with an average of 40.24%
Devon Energy Corporation (DVN - Free Report) , another Zacks Ranked #1 stock, has an expected earnings growth rate of 171.43% for 2018.
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