UPDATE: Wunderlich Initiates Coverage On Earthstone Energy, Shares Surge 14%

Wunderlich initiated coverage on Earthstone Energy Inc (NYSE: ESTE) Monday with a Buy rating and $24 price target.

Analyst Jason A Wangler noted that the “main asset for ESTE is its operated Eagle Ford position in the core of the oily Eagle Ford. Currently the company has over 23,000 net acres in Gonzales and Fayette counties, assets it previously ran at GeoResources, Inc. before it was sold, and a solid non-operated position as well."

Wangler looked for the above "assets to be a strong growth driver that can drive solid returns and growth given the two-rig program currently ongoing.”

“Management of ESTE has a strong pedigree given the five previous companies it has built up and sold at strong rates of returns for investors. The latest company, GeoResources, Inc., was sold to Halcon Resources for about $1 billion and generated a 35 percent rate of return for investors, while the previous four also had substantial returns as well. With the same strategy, management, and Eagle Ford assets, we believe the team can do it again,” according to Wangler.

Wangler also felt the balance sheet was strong as “the company has over $100 million in cash and an undrawn $56.5 million credit facility it can use to fund operations along with the cash flows from its current 3,000 boe/day production base.”

The analyst note concluded, “The shares are trading at 4.8x 2016E CFPS versus peers at 1.4x, but, in our view, the balance sheet strength, management quality, and growth potential deserve a premium multiple. We use a multiple of 5.8x CFPS to calculate our $24 target.”

Earthstone Energy surged amid the positive coverage and recently traded at $21.85, up 14.52 percent.