Diamondback Energy (FANG) Update - August 15

[dan_s]

FANG is trading at $96.15 this morning.
John White at Roth Capital sent out an updated report on the company this morning. Below are his comments with my comments in blue.
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Our valuation is based on a net asset value (NAV) analysis which produced $142.22 per share which we rounded lower to $140.00 which is are target price. < My valuation of $162/share is based on a higher WTI oil price than what John is using for Q4 and 2020.

FANG: Strong 2Q 2019, We See Free Cash Flow in 2H 2019: Positive

Solid 2Q and encouraging guidance as FANG lowered the midpoint of 2019 capital expenditure guidance and increased the midpoint of full year 2019 production guide. On the conference call FANG’s CEO Travis Stice stated the company plans to deliver over $750 million of free cash flow at a $55 WTI crude oil price in 2020.

We agree directionally with this goal. We assume an average of $52.25/bbl WTI crude oil price in 2020 and our model indicates free cash flow totaling $504 million. Our model indicates modest free cash flow is achieved in 3Q 2019 and increases to $104 million in 4Q 2019.

The midpoint of the 2019 capex was lowered due to strong control of drilling and completion costs. FANG's per lateral foot well costs in 1H 2019 are down 7% year over year in the Midland Basin and 16% year over year in the Delaware Basin.

To better reflect the current commodity price environment, we have lowered our 3Q WTI crude oil price estimate from $57.00/bbl to $56.00/bbl and our 4Q 2019 WTI crude oil estimate moves from $57.00/bbl to $54.00/bbl. Our 2020 WTI crude oil price forecast moves lower from $54.75/bbl to $52.25/bbl. Our assumptions for WTI crude oil price in 2021 and beyond moves from $53.00/bbl to $52.00/bbl.

Our 3Q 2019 Henry Hub natural gas price forecast moves from $2.25/MMBtu to $2.20/MMBtu and our 4Q 2019 Henry Hub natural gas price forecast moves from $2.40/MMBtu to $2.25/MMBtu. Our 2020 Henry Hub natural gas price moves lower from $2.49/MMBtu to $2.40/MMBtu. Our assumptions for the Henry Hub natural gas price in 2021 and beyond moves from $2.60/MMBtu to $2.50/MMBtu.

Due to our lower oil and gas price deck, our price target moves lower,from $150.00 to $140.00.

Our 3Q 2019 estimates are essentially unchanged from EPS/CFPS/EBITDA of $2.01/$4.65/$833.5 million to $1.97/$4.81/$862.6 million. < Compares to my Q3 forecast of $1.81 EPS and operating cash flow per share ("CFPS") of $4.66.