Umm.. UBS Likes XTO (Why would anyone want to slow the development of cold fusion ?)
(XTO) Reit Buy XTO will acquire 786 Bcfe (12% PUDs, 52% gas) from CVX for $1.1 Bil (or $1.40/Mcfe, below recent deals and its multiple of a $1.66/Mcfe). On an EV/EBITDX basis, XTO is paying 5.7x `05E EBITDX, below its 6.4x pre-deal multiple but above the peer avg of 5.1x. The deal is expected to close 8/6/04. Increasing CFPS estimates on higher volumes We are increasing our `04 & `05 production growth forecasts to 31% & 22%. Accordingly, we are increasing our `04 EPS/CFPS estimates to $2.00/$4.50 and increasing our `05 CFPS estimate to $4.55. Our model assumes the deal is financed with a $600 MM equity. Has XTO bitten off more than it can chew? Although this deal is typical of XTO (long-lived reserves w/ proven production histories, shallow rates of decline and exploitation upside), we are concerned that the sheer size of this deal may put pressure on XTO`s engineering-intensive development efficiency strategy, and dilute its core East Texas region. Valuation: Attractive on a FCF basis On an EV/ `04E free cash flow basis (a multiple that factors its superior capital efficiency), XTO trades at 11.2x, well below the peer group avg of 13.3x. We rate XTO Buy 2 with a revised $33 price target (from $34), based on a FCF multiple in-line with its peers.
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