Permian Resources (PR) Stock: A Good Buy After Q3 2024 Earnings

Permian Resources Corporation (NYSE: PR) has emerged as a promising stock in the energy sector, particularly for investors looking for exposure to oil and gas production. Based in Midland, Texas, Permian Resources specializes in the acquisition and development of oil and gas properties within the Delaware Basin, positioning it as a leading pure-play producer in the Permian Basin a prolific oil region in the U.S. Known for its high-return assets and disciplined capital management, Permian Resources has displayed robust financial growth and operational efficiencies in recent years.

1. Overview of Permian Resources

Founded in 2015, Permian Resources Corporation operates exclusively in the Delaware Basin, which is part of the broader Permian Basin, widely regarded as one of the world’s richest sources of oil and natural gas. The company’s business model is centered on high-return drilling programs and a strategy that maximizes resource optimization. Permian Resources has focused on cost efficiency, enhancing operational margins while benefiting from strong regional demand for oil and gas. By maintaining a solid asset base and executing strategic acquisitions, such as its merger with Earthstone Energy, Permian Resources aims to solidify its standing in a competitive energy market.

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2. Permian Resources Financial Performance

In its latest quarterly report for Q3 2024, Permian Resources demonstrated strong financial performance, highlighting the strength and growth of its operations. The company reported quarterly revenue of $1.216 billion, an increase of 60.25% from $758.54 million in Q3 2023. This substantial growth reflects Permian Resources’ ability to effectively increase production and expand its operational reach in the Delaware Basin.

The company’s earnings per share (EPS) also saw remarkable improvement, reaching $0.53 in Q3 2024, a 311.94% increase from $0.13 in Q3 2023. This substantial EPS growth highlights the company’s growing profitability, benefiting from both operational efficiencies and favorable market conditions.

Over the trailing twelve months (TTM), Permian Resources achieved revenue of $4.827 billion, a 74.92% increase from the $3.121 billion reported for FY 2023, underscoring the consistent upward trajectory of its financials. Similarly, EPS for the TTM ending in Q3 2024 rose to $1.65, compared to $1.24 for FY 2023, marking an 85.31% increase.

These gains in revenue and EPS are complemented by solid free cash flow (FCF) generation, with $227.71 million recorded over the TTM. This level of FCF provides substantial liquidity for Permian Resources to support future investments, manage its debt effectively, and enhance shareholder returns through dividends or stock buybacks.

3. PR Stock Price Performance and Valuation

Over the past year, Permian Resources (PR) stock has increased by 9% to $14.92 per share. The modest rise in stock price, combined with the company's strong business growth, creates a valuable buying opportunity. The stock’s current price-to-earnings (P/E) ratio stands at approximately 9.04, which remains attractive compared to industry peers, suggesting the stock is still undervalued compared to it’s growth.

The company’s price-to-sales (P/S) ratio of 1.79 further indicates an appealing valuation. Lower P/E and P/S ratios relative to the industry mean that investors can acquire shares at a discount to its revenue and earnings potential. With the current valuation metrics and the company’s profitability trajectory, Permian Resources appears well-positioned for long-term value appreciation.

4. Company Growth Potential

The growth outlook for Permian Resources is underpinned by both internal and external factors. Internally, the company’s strategic focus on efficient drilling operations and cost management has allowed it to maximize returns on its high-quality assets. Furthermore, the Earthstone Energy merger and subsequent bolt-on acquisitions have expanded Permian Resources’ resource base, enhancing its production capacity and operational footprint in the Permian Basin.

Externally, the broader oil and gas industry is seeing increasing demand as global economies recover and energy consumption rises. With its assets strategically located in a top-tier oil-producing region, Permian Resources is well-positioned to capitalize on these favorable market conditions. Additionally, the company’s disciplined capital allocation strategy, including its return-on-capital program, supports continued reinvestment into growth projects without over-leveraging.

5. Risks

Despite its promising outlook, investing in Permian Resources does carry some risks. The oil and gas sector is inherently volatile, influenced by fluctuating commodity prices and economic cycles. Oil prices can be impacted by a range of factors, including geopolitical tensions, supply constraints, and policy changes. Permian Resources is exposed to these risks as an exploration and production company; however, the company has taken steps to mitigate some volatility by implementing a hedging strategy.

The company’s significant debt, stemming partly from recent acquisitions, could be a concern if oil prices were to decline significantly, limiting cash flow. Additionally, environmental and regulatory risks pose challenges, as the oil and gas industry faces increasing scrutiny and potential regulatory changes. Nevertheless, Permian Resources has shown resilience and adaptability, maintaining profitability even during periods of market uncertainty. For investors willing to accept these industry risks, the company’s growth trajectory and sound financial health offer a compelling investment case.

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Conclusion

Permian Resources (PR) presents a strong investment opportunity for those interested in the oil and gas sector. Its robust financial performance, marked by substantial revenue and net income growth, is a testament to the company’s operational efficiency and strategic expansion. With an attractive valuation and promising growth potential, particularly in the Delaware Basin, Permian Resources stands as a well-positioned, high-return investment. While there are inherent risks, the company’s proactive management approach and focus on asset optimization mitigate potential downsides. Overall, Permian Resources is a promising choice for investors seeking long-term exposure to the energy sector.