Diamondback Energy (FANG) for Growth & Income - Jan 6

[dan_s]

At least ten times each year, I am asked "If you could only buy one of the stocks mentioned in your newsletter, which one would it be?"
First let me stress that it is never a good idea to put all of your eggs in one basket and it depends on your investment goals. That said, if I was forced to answer the question above, FANG would be on a short list. It has matured into a classic Growth & Income stock.

I have moved FANG into our High Yield Income Portfolio because, based on my forecast, their dividends during 2024 should total more than $12/share. Their most recent "Regular + Variable" Q3 dividend was $3.37/share. Based on the January 5th closing price of $155.95, the annualized dividend yield should be close to 8%. Diamondback's production increased year-over-year by 15.7% in 2023, primarily due to the Firebird and Lario acquisitions.
For 2024 I expect the Company's production to be ~475,000 Boepd, generate revenues over $9.2 billion, net income of $3.8 billion ($21.69/share) and operating cash flow over $6.3 billion ($36.12/share).
TipRanks: "In the last 3 months, 18 ranked analysts set 12-month price targets for FANG. The average price target among the analysts is $183.42."

Notes below are from HFI Research.

Diamondback Energy (FANG) is a leading Permian E&P. It is the largest pure-play Permian operator after Pioneer Natural Resources (PXD), which is being acquired by ExxonMobil (XOM) Diamondback holds some of the highest-quality acreage in the basin. In 2023, it produced approximately 450,000 barrels per day (bpd) comprised of 58% crude oil, 21% NGLs, and 20% natural gas. Its acreage is weighted toward the Midland Basin, but it also has significant holdings in the Delaware Basin.

As of its 2022 reserve report, the company possessed 14 years of proved and probable reserves.

Diamondback holds a 57% equity interest in Viper Energy Inc. (VNOM), its sponsored mineral and royalty interest holder. Dividends from Viper accounted for 6% of Diamondback’s free cash flow in 2023 through November 30.

Due to its low-cost operating model and conservative financial position, Diamondback is a sort of jack-of-all-trades for E&P investors. The company is able to emphasize returning capital to shareholders while also growing production in the mid-single-digit range.

At the same time, it is able to be an effective consolidator. In 2023, it acquired privately-held E&Ps Lario Permian and FireBird Energy for a combined $3 billion. The acquisitions brought an additional 500 drilling locations across 83,000 acres and increased Diamondback’s production by 37,000 bpd. They provided the company with additional scale in the Midland Basin, and we suspect they extended its reserve life, as well.

In the third quarter, Diamondback established Deep Blue Midland Basin, LLC, a joint venture to manage water in the Permian, in which it owns a 30% equity interest. Deep Blue is now the largest water business in the basin. While it will marginally increase Diamondback’s operating costs per barrel, the cost increase will be more than offset by reduced midstream capex requirements.

Diamondback has been actively disposing of non-core acreage. In the seven quarters ending November 30, 2023, it generated $1.7 billion of proceeds from asset sales. It has allocated the proceeds to fund acquisitions and pay down debt.

At the end of the third quarter, net debt stood at $5.5 billion, a conservative 0.8-times trailing cash flow. The company maintains a conservative debt maturity profile.

[KGardiner]

Dan,
I'm looking for the most recent FANG Forecast Model under the High Yield tab.
Can someone add the link?
Thanks
Kevin

[KGardiner]

I'm also looking for the ENB forecast.

[dan_s]

My forecast for FANG has been posted under the High Yield Tab.

TipRanks' current price target is now $183.11, which compares to my valuation of $184.00.

FYI when I am out of town, and you need something send an email to Sabrina at energyprospectus@gmail.com

[KGardiner]

Thanks Dan,
In the future I will message Sabrina.
Kevin