Viper (VNOM) Price Target Update - Aug 31

[dan_s]

Note below from John Freeman at Raymond James

VIPER ENERGY PARTNERS LP (VNOM-NASDAQ)
Exploration and Production

Updating Estimates; Reiterate Outperform Rating with price target of $41

RECOMMENDATION
We’re updating our estimates post 2Q22 earnings. As a review, Viper posted solid 2Q with oil production of 19.8 Mbo/d easily beat RJ/Street by 8% and total production of 33.6 Mboe/d beat expectations by 6%. The strong production figures flowed through to their quarterly distribution, with VNOM announcing a distribution of $0.81/share. VNOM bumped their cash payout to 75% from 70% previously. The structure of VNOM’s dividend also changed, with the company choosing to implement a base+variable/buyback strategy. We anticipate VNOM leaning into the buyback for Q3 and Q4. The base has been introduced at $1/share annualized. We currently estimate a 2023 total shareholder yield of ~11.5% (dividends+buyback). VNOM has a competitive advantage with their FANG relationship, this combined with top tier assets in the Permian provide investors with a compelling yield vehicle. Overall, we reiterate our Outperform rating and increase our target price to $41/share.

Payout ratio increased to 75%: VNOM made an interesting move deciding to adopt the Diamondback-style-return program of base plus variable plus buybacks, with variable dividends and buybacks acting as a toggle. VNOM is the only mineral company with buybacks incorporated into their shareholder return programs making them unique in the minerals space. We have them leaning into the buyback for the rest of 2022, but assume 2023 will revert more to the norm (very heavily weighted toward dividend vs. buyback).

VALUATION
We value VNOM using a net asset value-based approach, which attributes value to legacy PDP, undeveloped upside potential, and modeled acquisitions. Our $41/unit price target is determined using the PV of forecasted distributions (see page 2).

If you'd like to see the full report from Raymond James, send me at email at dmsteffens@comcast.net