Diamondback Energy (FANG) Update - June 3

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Diamondback Energy (FANG) Update - June 3

Post by dan_s »

Morgan Stanley has increased their price target for FANG to $161/share. < This compares to my Fair Value Estimate of $162/share.

Drew Venker, CFA – Morgan Stanley
June 3, 2019 1:46 PM GMT

Peer leading growth and ongoing cash return is the best way for FANG to maximize value creation. We see this as the catalyst to re-rate FANG in line with peers (34% upside) while holding well performance constant w/ 2018 would drive another 8% upside.

Peer leading growth or return of cash? FANG should continue to deliver both, in our view, because it will maximize value creation. Capital discipline and return of cash is en vogue, but growth remains the primary driver of valuation for shale focused E&Ps and many struggle to deliver both. FANG, however, has the high quality assets and management to deliver both peer-leading growth and strong cash returns. We think this is the best option for shareholders vs. solely prioritizing cash returns. Maintaining peer-leading growth while generating large free cash flow should also support multiple expansion. Re-rating in line with peers implies 34% upside while a likely production beat suggests another 8% upside.

FANG’s unmatched optionality warrants a re-rating. Superior execution and cost structure allow FANG to sustainably grow at peer-leading rates and fully fund large cash returns. We believe this will drive multiple expansion as it becomes clear that FANG can deliver on both fronts.
Dan Steffens
Energy Prospectus Group
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