Diamondback Energy (FANG) Update - Sept 6

Diamondback Energy (FANG) Update - Sept 6

Postby dan_s » Tue Sep 06, 2022 10:48 am

FANG is a large-cap upstream company in our High Yield Income Portfolio.

Note from Piper Sandler this morning.

"FANG: We met with FANG’s Chairman and CEO Travis Stice along with VP of IR Adam Lawless
and VP of Completions Hunter Landers. While the message from FANG has been centered
on a maintenance capital plan, the company is pivoting more to one of stable activity with
expectations that more efficient capital allocation will drive 3-5% production growth in 2023.

Coming up on its 10 year anniversary as a public company, FANG remains focused on execution,
low cost operations and transparency and more recently has incorporated capital return and
decarbonization as core tenets of its business strategy. Management has been frustrated that
equity performance has lagged despite strong execution across its business, stressed that it
continues to opportunistically buy back the stock and believes its efficient growth strategy will
be a differentiating factor on performance going forward.
On the operations front, the company
continues to focus on the Midland with expectations of 75-80% of activity, and within the Midland
~70% of activity will be in Martin County. The company is bringing on the first of two HAL efleet
simulfrac completion crews in October and in addition has its own mini sand mine coming which
will cut down on sand costs. On the midstream front the company has a 25% stake in WTG
that is bringing on 400 mmcf/d of much need gas processing capacity (half in 4Q22 and the
balance in mid-2023), as others had discussed constrained processing capacity in the basin.
The capacity will help mitigate allocated flaring, as the company discussed midstream’s role in
reducing flaring and emissions, but will also result in incremental liquids volumes. In addition to
the incremental growth message, as well as capital return with the company returning 75% of
FCF to shareholders, the company should also benefit from strong realizations with the company
getting Brent-linked pricing for 60-65% of volumes and the current spread over $6/bbl but having
been wider of late.
(Lear)

MY TAKE:
> 3% to 5% production growth in 2023 compares to the 1% I have used in my forecast model.
> I need to update my forecast for the merger of Rattler Midstream back into FANG which should raise free cash flow.
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 30119
Joined: Fri Apr 23, 2010 8:22 am

Re: Diamondback Energy (FANG) Update - Sept 6

Postby dan_s » Tue Sep 06, 2022 11:05 am

TipRanks 9-6-2022
"In the last 3 months, 16 ranked analysts set 12-month price targets for FANG. The average price target among the analysts is $178.69. The 16 price targets range from $143 to $206."

Most Recent:
8-29-2022: "Devin McDermott from Morgan Stanley maintained a Buy rating on Diamondback (FANG), with a price target of $175.00."

8-18-2022: "Mizuho analyst Vincent Lovaglio lowered the firm's price target on Diamondback Energy to $203 from $224 and keeps a Buy rating on the shares. The analyst says his broader thesis for the exploration and production sector holds post the Q2 results. Structural undersupply, led by multi-year underinvestment, should continue to support higher than expected commodity prices and higher than expected cash returns, making the group a relatively good value verses the broader market, Lovaglio tells investors in a research note."

I have updated my forecast/valuation model for FANG and posted it to the EPG website.
My current valuation adjusts to $198/share.

FANG was trading at $135.58 at the time of this post.
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 30119
Joined: Fri Apr 23, 2010 8:22 am


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