Imperial Capital Initiates Coverage On Earthstone Energy

Imperial Capital initiated coverage on Earthstone Energy Inc ESTE Monday with an Outperform rating and $35 price target.

Analyst Kim Pacanovsky noted that the firm’s “price target is about 47 percent above the recent share price. Earthstone Energy, Inc.’s pending reverse merger with Oak Valley Resources, LLC, a private company led by veteran oilman Frank Lodzinski (and who will take the helm of the combined company) gives shareholders an expanded asset base and the opportunity for growth in a prime area of the Eagle Ford Shale (EFS).”

“A subsequent increase in working interests via an agreement with Flatonia enhances the EFS position. In our view, the anticipated December 2014 completion of the acquisition has the potential to be a game-changer for ESTE shareholders,” according to Pacanovsky.

“In an $80 crude price environment, we expect the post-merger ESTE to continue a two-rig program in its Eagle Ford core, where breakeven is between $62 and $67/bbl (and even lower in its “sweet” regions). We believe there is an opportunity for existing and new shareholders to benefit from the merger and we await its completion, along with the concurrent ability for more transparency concerning Eagle Ford economics, decline curves, strategy, as well as capex and production guidance.

“With a pro forma P1 NAV of $28, we believe the shares are clearly undervalued,” the analyst report concluded.

Earthstone Energy recently traded at $24.29, up 2 percent.