FANG and PE are Top Picks of BofA Equity Research - Sept 24

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dan_s
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FANG and PE are Top Picks of BofA Equity Research - Sept 24

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Notes below are from a BofA Research note sent out on Sept 24

Diamondback Energy (FANG, Buy)
We see FANG shares offering value to shareholders with the stock trading at a 60%
discount to the current Russell 1000 forward EV to EBITDA multiple. This compares to
the historical 5 year average of 23%. FANG is one of the most durable E&Ps within our
coverage universe with >50% of 2021 production hedged and a strong balance sheet
that can continue to withstand commodity prices in a mid -$30 WTI environment. If oil
prices recover we believe the company is well positioned to capitalize and grow its
dividend. The stock presently yields ~4.5% at current prices, which we believe is
sufficiently protected by cash flows which are well hedged. With a leading sustaining
capex profile, cost leadership, superior execution and operational flexibility, we believe
FANG ’ s FCF profile and long runway (>20 year inventory) is under-appreciated. On ESG,
FANG is a sector leader and has already started to incorporate ESG metrics (incl. flaring,
water recycling and spill control) into management compensation scorecards.

Parsley Energy (PE, Buy)
We see PE shares offering value to shareholders with the stock trading at a 60%
discount to the current Russell 1000 forward EV to EBITDA multiple. This compares to
the historical 5 year average of 33%. We expect Parsley to generate >$350m m in FCF
this year. We believe free cash will grow by at least $100mm next year even in a flat oil
price environment as capex resets lower. Parsley remains well hedged in 2021with 76%
of expected oil production hedged. PE stock is presently yielding ~2% and we believe the
company is well placed to grow the dividend from here. Along with integration of JAG
assets, PE should also benefit from high-grading activity, lower well costs and further
efficiency gains. Notably, the company is at the forefront advancing its ESG agenda and
is one of the lowest emitters and flarers of gas in our coverage universe.

They also rate Ovintve (OVV) an BUY but don't make any comments about the company.
Dan Steffens
Energy Prospectus Group
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