Analyst Actions: Noble Energy Target Lifted $24, Keeps Outperform At Credit Suisse; Shrs Hit New 52 Week Highs
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."