Credit Suisse says: "Tip of the Wattenberg Iceberg; 'Rate of
Change' Trumps Valuation Concerns; Raising TP to $135 (from
$111)
Our take: "Following a favorable re-rating post its December
analyst meeting, we have fielded numerous buyside inquiries if the
valuation now appropriately discounts the company's growth
prospects, particularly in the DJ Basin. We don't think so. We
believe the set-up is analogous to EOG Resources (
EOG
), which outperformed the peer group by 21% in 2012. We are raising
our 12-month target price to $135 from $111 to reflect an increase
in our NAV estimate, assuming 6.5 times our 2013 EBIDA
estimate."
Deja vu all over again. "Stealing a page from Yogi Berra's
playbook, we believe NBL is set up similar to EOG in 2012. While
EOG was a consensus long, it meaningfully outperformed the peer
group on an improving 'rate of change' in the Eagle Ford (EF)
Shale-better than expected EF growth (higher completion activity
and a higher mix of 'monster' wells) and improved capital
efficiencies (higher wellcount at flat capex). In 2013, NBL expects
to complete 300 DJ Basin wells vs. ~200 wells in 2012. Importantly,
60 of these wells are poised to be 'monster' wells (extended
laterals that have more than two times the EUR as the shorter
laterals) and 80 wells will be drilled in Northern Colorado
(primarily East Pony), which have the highest returns in the play
given liquids yields of 85%."
'Rate of change' trumps valuation concerns. "We believe the
'rate of change' for its DJ Basin asset base is improving on
numerous fronts-rising liquids mix, EURs, well counts,
infrastructure availability, and inventory. Thus far, NBL has
drilled 330 horizontal Niobrara wells, with an undrilled inventory
of 9,500 wells. We are in the very early innings of this horizontal
resource play. History suggests this is a much more important
driver of stock performance, particularly for companies developing
large U.S. unconventional onshore asset bases, than the modest
premium valuation on 2013 metrics."
Reiterate Outperform and raise target price to $135: "We
reiterate our Outperform rating and are raising our 12-month target
price to $135 from $115 per share, assuming 6.5 times our 2013E
EBIDA and ~95% of our revised NAV. We continue to see a unique
risk-reward opportunity at NBL given unparalleled visibility from
its five core areas, particularly in the DJ Basin, and several
swings at high impact exploration. We believe the positive 'rate of
change' should trump valuation concerns as NBL is only trading at
modest premiums on consensus 2013 and 2014 EBITDA estimates."