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Opportunity Knocks: Buy the Dip on Permian Resources Stock?

Industrial oil and gas well — Photo

Key Points

  • Permian Resources has faced headwinds including low oil prices and political uncertainty in recent months, bringing shares down by more than 22% since April.
  • However, the company's strong cost management, merger and acquisition (M&A) strategy and earnings growth make it a prime candidate for growth in a more favorable environment.
  • The recent price dip may make Permian Resources a good choice among investors willing to wait for the oil and gas industry to improve.
  • 5 stocks we like better than Occidental Petroleum.

The U.S. oil and gas exploration and production industry has faced headwinds related to falling natural gas prices and political uncertainty so far in 2024. Cash from operations across three dozen leading U.S. firms fell in real terms from the first quarter of 2023 to the first quarter of this year due to lower gas prices. The November election is also likely to play a significant role in shaping the industry's future.

At the same time, production cuts by OPEC+ have supported increased crude oil production among some U.S. firms, with companies like Antero Resources Corp. NYSE: AR and Pembina Pipeline Corp. NYSE: PBA benefiting from the shift. One area that has not experienced a wholesale production increase, though, is the Permian Basin of the southwestern U.S. West Texas' Waha hub experienced negative trading for much of the summer, prompting some producers in the area to curtail production.

Permian Resources Today

Permian Resources Co. stock logo
PRPR 90-day performance
Permian Resources
$13.60 +0.08 (+0.59%)
(As of 12/20/2024 05:31 PM ET)
52-Week Range
$12.59
$18.28
Dividend Yield
4.41%
P/E Ratio
8.24
Price Target
$18.87

Permian Resources Corp. NYSE: PR shares have slid by more than 22% in the last six months. Over the last year, the company's stock has significantly underperformed competitors like Antero and Pembina.

Nonetheless, Permian Resources has a history of cost management, successful M&A activity, and strong earnings performance that may entice investors interested in buying while share prices are low.

Permian Resources: Keeping Costs Down, Earning Efficiently

Operating an oil and gas production company is costly, but Permian Resources does a good job of reducing these expenses whenever possible. Its total costs are below the industry average, thanks in part to its low lease operating expenses (LOE; the costs of maintaining a well after the initial expenses of drilling and completion) of $5.18 per barrel of oil equivalent (BOE).

Overall, the company reduced total controllable cash costs by 8% quarter-over-quarter for the most recent quarterly period to $7.45 per BOE. Permian is also finding ways to reduce costs on new drilling projects, which are down 13% relative to last year.

At the same time, total production increased by 6% from the first quarter of the year to the second. By bringing production up and minimizing costs, Permian Resources has contributed meaningfully to free cash flow growth. In the second quarter, the company generated $332 million in adjusted free cash flow, or $0.43 per share. Adjusted free cash flow per share is up an impressive 60% since the first quarter of 2023.

Permian's Strong M&A Activity

In mid-September, Permian completed the acquisition of various leasehold and royalty interests, including midstream infrastructure, from Occidental Petroleum Corp. NYSE: OXY. This acquisition increased Permian's resource base by nearly 30,000 acres adjacent to its prior assets in Texas. The new interest is expected to generate roughly 15,000 BOE per day.

This acquisition is just the latest in a longer series of deals that analysts have viewed positively. Permian has successfully targeted key royalty and land interests for expansion, keeping costs down in the process.

Earnings Growth Potential

Permian Resources MarketRank™ Stock Analysis

Overall MarketRank™
97th Percentile
Analyst Rating
Moderate Buy
Upside/Downside
38.7% Upside
Short Interest Level
Healthy
Dividend Strength
Strong
Environmental Score
N/A
News Sentiment
0.68mentions of Permian Resources in the last 14 days
Insider Trading
N/A
Proj. Earnings Growth
5.44%
See Full Analysis

Permian has topped analyst expectations for earnings per share for each of the last three quarters. Analysts are optimistic about the potential for future growth as well: Permian enjoys a projected earnings growth rate of nearly 16%.

Fast-growing earnings have allowed Permian to boost its dividend to $0.15 from $0.06 in September and to initiate a $1-billion share buyback program. Permian executives have assured investors that the dividend is sustainable for more than two years, regardless of the price of oil at that time.

Permian Stock's Upside Opportunity

Given these factors, it's little surprise that analysts largely believe Permian Resources has the potential to reverse its recent downward trend and reclaim much of its lost share value. The average price target for PR shares is $19.20, representing upside potential of about 39%. Still, the unpredictability of the U.S. political climate going forward and the trajectory of oil prices may mean that investors will have to wait to realize this opportunity. Permian's stable history and impressive operations make it a good candidate for buy-and-hold investors interested in waiting for more favorable external conditions.

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Nathan Reiff
About The Author

Nathan Reiff

Contributing Author

Fundamental analysis, ETFs, Consumer Staples

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Antero Resources (AR)
3.6411 of 5 stars
$30.93+0.2%N/A220.93Moderate Buy$34.78
Pembina Pipeline (PBA)
3.3168 of 5 stars
$36.41+0.9%5.60%15.05Hold$56.50
Permian Resources (PR)
4.8738 of 5 stars
$13.60+0.6%4.41%8.24Moderate Buy$18.87
Occidental Petroleum (OXY)
4.7091 of 5 stars
$47.13+3.9%1.87%12.27Hold$62.10
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