FANG - Pioneer Natural Resources pops 10% after Exxon deal report; analysts weigh in

2023-10-06 10:38:21 ET

• Pioneer Natural Resources ( NYSE: PXD ) +9.8% in early trading Friday following The Wall Street Journal 's report that Exxon Mobil ( NYSE: XOM ) is in advanced talks to buy the company in a deal valued at ~$60B; Exxon trades -3% .
• For Exxon ( XOM ), a deal would add valuable acreage near some of its own fields and make it the dominant producer in the Permian Basin; Pioneer ( PXD ) is the Permian's largest operator at 9% of gross production while Exxon is no. 5 at 6%
• In Q2, Exxon's ( XOM ) Permian production totaled ~620K boe/day while Pioneer's ( PXD ) Permian output averaged 711K boe/day.
• Exxon ( XOM ), which earned a record $55.7B profit in 2022, had accumulated nearly $30B cash at the end of June 30.
• "We suspect Exxon will fund the deal with mostly equity given the elevated cost of debt, which appears to be above Exxon's dividend yield," TD Cowen analysts said.
• The price is right , according to Spencer Jakob at The Wall Street Journal 's Heard On The Street, who calculates the reported $60B price plus net debt means Exxon ( XOM ) would pay only ~6.5x EBITDA that analysts polled by FactSet expect Pioneer ( PXD ) will generate over the next 12 months.
• Goldman analysts note Exxon's ( XOM ) current leadership has been clear that it wants "top of the pack" positions in the areas where it chooses to operate, and the company has been "sub-scale" in the depth of its Lower 48 inventory.
• Pioneer ( PXD ) shares are down so far this year despite the company's strong performance in the field, improving well productivity and meaningful cash return to shareholders, J.P. Morgan said.
• While most energy stocks trade lower, Permian producers speculated as potential takeover targets are up, including Permian Resources ( PR ) +3.6% , Diamondback Energy ( FANG ) +2.8% , Coterra Energy ( CTRA ) +1.8% , Devon Energy ( DVN ) +0.4% .

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