Permian Resources (PR)

Oil and gas producer Permian Resources (NYSE:PR) missed Wall Street’s revenue expectations in Q4 CY2025, with sales falling 9.8% year on year to $1.17 billion. Its non-GAAP profit of $0.37 per share was 37% above analysts’ consensus estimates.

Company Overview

Controlling roughly 450,000 net acres in America's most productive oil patch, Permian Resources (NYSE:PR) is an oil and natural gas producer that drills wells and extracts hydrocarbons from underground reservoirs in West Texas and New Mexico.

US shale oil producers extract crude from tight rock formations using horizontal drilling and hydraulic fracturing (fracking) techniques, primarily in basins like the Permian, Bakken, and Eagle Ford. Tailwinds include short-cycle investment flexibility allowing rapid production adjustments, technological improvements enhancing well productivity, and proximity to refining and export infrastructure. Capital discipline has improved financial returns. Headwinds include commodity price sensitivity affecting drilling economics, accelerating well decline rates requiring continuous capital investment, and increasing regulatory and ESG scrutiny. Water usage, induced seismicity concerns, and evolving environmental regulations present ongoing operational challenges.

Permian Resources competes with other independent oil and gas producers focused on the Permian Basin, including Diamondback Energy (NASDAQ:FANG), Coterra Energy (NYSE:CTRA), Matador Resources (NYSE:MTDR), and Vital Energy (NYSE:VTLE).

In Energy, scale separates fragile single-asset producers from platform-style businesses that generate revenue across entire basins and infrastructure networks. Permian Resources’s $5.07 billion of revenue in the last year is mid-sized for the industry.

Cyclical sectors like Energy often flatter weaker operators during favorable price environments, but a longer-term lens separates those from businesses that can consistently perform across market cycles. Luckily, Permian Resources’s sales grew at an incredible 54.5% compounded annual growth rate over the last five years. Its growth surpassed the average energy upstream and integrated energy company and shows its offerings resonate with customers, a great starting point for our analysis.

Within Energy, a singular timeframe, even if it’s quite long-term, only sheds light on how well a company rode the last commodity cycle. To better assess whether a company compounds through cycles, we validate our view with an even longer, ten-year view. Permian Resources’s annualized revenue growth of 43.3% over the last ten years is below its five-year trend, but we still think the results suggest decent demand.

While looking at revenue is important, it can also introduce noise around commodity prices and M&A. Analyzing production, on the other hand, highlights what is happening inside the asset base and whether the economic footprint of a company is expanding. Over the last two years, Permian Resources’s total oil volume per day - Upstream averaged 53.6% year-on-year growth while natural gas volume per day - Upstream averaged 48.8% year-on-year growth, which was good.

This quarter, Permian Resources missed Wall Street’s estimates and reported a rather uninspiring 9.8% year-on-year revenue decline, generating $1.17 billion of revenue. This quarter, Permian Resources’s production grew by 4.7% year on year to 664.3 Mboe (thousand barrels of oil equivalent), falling short of Wall Street’s estimates.

In a single quarter or year, gross margins in the sector can swing wildly due to commodity prices, hedging, or changes in labor costs. Over a multi-year period across different points in the cycle, gross margin differences can signal whether a company is a structurally-advantaged producer (“rock” quality, takeaway, operating costs) or not.

Permian Resources, which averaged 75.6% gross margin over the last five years, exhibits enviable unit economics in the sector. It means the company will remain profitable at lower commodity prices than peers with inferior gross margins and serves as an advantaged starting point for ultimate operating profits and free cash flow generation.

Permian Resources’s gross profit margin came in at 72.3% this quarter, down 2.1 percentage points year on year.

Adjusted EBITDA margin strips out accounting distortions tied to depletion and historical drilling spend, providing a clearer view of the cash-generating power of the underlying asset base before financing and reinvestment decisions.

Permian Resources has been a well-oiled machine over the last five years. It demonstrated elite profitability for an upstream and integrated energy business, boasting an average EBITDA margin of 71.1%.

Looking at the trend in its profitability, Permian Resources’s EBITDA margin rose by 17.3 percentage points over the last year, as its sales growth gave it immense operating leverage.

This quarter, Permian Resources generated an EBITDA margin profit margin of 80.2%, up 6.4 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses. This adjusted EBITDA beat Wall Street’s estimates by 1.4%.

Adjusted EBITDA shows how profitable a company’s existing wells are before financing and reinvestment decisions, but free cash flow shows how much value remains after paying the cost of replacing those wells. In upstream energy, production naturally declines over time, so companies must continuously reinvest just to stand still. A producer can report strong EBITDA margins yet generate little or no free cash flow if its wells decline quickly or if new drilling is expensive. Free cash flow therefore captures not only how efficiently a company produces hydrocarbons today, but also how costly it is to sustain that production into the future.

Permian Resources has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the energy upstream and integrated energy sector, averaging 27.3% over the last five years.

Absolute FCF margin levels matter but so does stability of free cash flow. All else equal, we’d prefer a 25.0% average free cash flow margin that is quite steady no matter how commodity prices behave rather than extremely high margins when times are good and negative ones when they’re tough.

Permian Resources’s ratio of quarterly free cash flow volatility to WTI crude price volatility over the past five years was 4.6 (lower is better), indicating excellent insulation from commodity swings. This stability supports capital access in downturns and positions Permian Resources to act as a consolidator when weaker peers are forced to retrench.

You may be asking why we wait until the free cash flow line to perform this stability analysis versus commodity prices. Why not compare revenue or EBITDA to WTI Crude prices in the case of Permian Resources? Because what ultimately matters is not how much revenue or profit you earn when prices are high but how much cash you can generate when prices are low. Free cash flow is the superior metric because it includes everything from hedging prowess to growth and maintenance capex to management behavior during good times and bad.

Permian Resources’s free cash flow clocked in at $421.5 million in Q4, equivalent to a 36% margin. This result was good as its margin was 8.2 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Free cash flow shows how much money a producer generated, while ROIC shows how efficiently that money was earned. ROIC measures the operating profit produced for each dollar of capital invested, whether from debt or equity. Cash generation measures quantity while ROIC measures the quality of value creation.

We at StockStory like to look at ROIC over a ten-year period because energy investment cycles can involve up to five years of ramping production and another five years of harvesting. A decade view captures buying, extracting, and monetizing rather than just part of that picture. Although Permian Resources has shown solid fundamentals lately, it historically did a mediocre job investing in profitable growth initiatives. Its nine-year average ROIC was 5.5%, somewhat low compared to the best energy upstream and integrated energy companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Permian Resources’s ROIC has unfortunately decreased. If its returns keep falling, it could suggest its profitable growth opportunities are drying up. We’ll keep a close eye.

Permian Resources reported $153.7 million of cash and $3.63 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $3.73 billion of EBITDA over the last 12 months, we view Permian Resources’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $288.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Permian Resources beat analysts’ EPS expectations this quarter. On the other hand, its revenue missed and its production fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded up 2.3% to $19.29 immediately after reporting.

Updated: March 12, 2026 at 1:11 AM EDT

When considering an investment in Permian Resources, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

There is a lot to like about Permian Resources. For starters, its revenue growth over the last five years was top-tier for the sector. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its revenue growth over the last ten years was top-tier for the sector. Additionally, Permian Resources’s admirable gross margin indicates excellent unit economics.

Permian Resources’s P/E ratio based on the next 12 months is 15.4x. Looking at the energy upstream and integrated energy space today, Permian Resources’s qualities as one of the best businesses really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $21.23 on the company (compared to the current share price of $19.35), implying they see 9.7% upside in buying Permian Resources in the short term.