Pioneer Natural Resources (PXD) ranks seventh among upstream companies in terms of analysts’ ratings. About 89% of analysts surveyed by Reuters rate PXD a “buy” as of September 4, while the remaining 11% rate it a “hold.”
Barclays recently initiated coverage on PXD with an “overweight” rating, which is equivalent to a “buy.” Overall, it has seen six rating updates since the start of this year, including four new coverage initiations, one upgrade, and one downgrade. PXD’s average target price of $243.50 offers a ~45% upside from its current price.
Why analysts are bullish on PXD
Pioneer Natural Resources is one of the largest E&P (exploration and production) players in the prolific Permian Basin. It has the largest acreage in the Midland Basin. That’s expected to drive strong production growth, and it’s possibly one of the major reasons behind analysts’ bullishness for the stock. Its strong liquidity position and balance sheet strengthening measures continue to drive positive sentiment for the stock.
The company is expected to post 39% YoY (year-over-year) EPS growth in 2018. Earnings growth momentum is expected to continue in 2019 and 2020, with ~60% and ~27% growth, respectively. For the same years, PXD is expected to post CFFO (cash flow from operations) growth of 32.8% and 20.9%, respectively.
According to PXD’s CEO, Timothy L. Dove, “We are in year two of our 10-year plan and remain committed to achieving oil production greater than 700 MBOPD and total production greater than 1 million barrels oil equivalent per day in 2026. By steadily increasing the pace of drilling our low-cost, high-return Permian Basin horizontal wells through 2026, we expect to deliver robust cash flow growth that will self-fund our capital program, improve our corporate returns and ultimately generate significant free cash flow.”
These factors could be the reasons behind the company’s premium valuation. PXD was trading at a forward price-to-CFFO ratio of 9.2x. That’s above the industry median of 5.3x. PXD’s peers Occidental Petroleum (OXY) and Diamondback Energy (FANG) are trading at a forward price-to-CFFO ratio of 7.4x and 7.9x, respectively.
For details on analysts’ favorite integrated energy stocks, including ExxonMobil (XOM) and Royal Dutch Shell (RDS.A), read Do Wall Street Analysts Love These Integrated Energy Stocks?