Diamondback Energy (FANG) Update - July 2

[dan_s]

FANG is trading for $97.84 at the time of this post. I am updating my valuation by $18 to $138.

Why?
> Diamondback is now on track to generate over $1 Billion of FCF from operations this year.
> Most of their "Bad Hedges" expire at year-end, sending operating cash flow from $3.8 Billion in 2021 to over $4.8 Billion in 2022. More cash flow in 2022 will increase the dividend, pay down more debt and add a few more drilling rigs.
> This company has some VERY GOOD leasehold in the Permian Basin; lots of high-return drilling inventory.
> Q2 will be the first full quarter since they closed the acquisitions of QEP and Guidon. I am expecting them to raise their production guidance.
> For 2020 their realized natural gas price was only $0.67/mcf. In Q1 2021 their realized ngas price was $2.64/mcf and their pipeline takeaway capacity has improved. Realized NGL prices went from $10.80/bbl in 2020 to $22.76/bbl in Q1 2021.

[dan_s]

From RBC Capital on 7-14-2021

Diamondback Energy Inc (NASDAQ: FANG; 90.04)
Published July 13 2021 18:29:28 EDT
Rating: Outperform
Price Target: 110.00

Quarterly Check-Up: 2Q21
Our view: We updated our 2Q21 estimates to reflect final commodity prices and
made other changes to our model based on our channel checks, data analytics,
and conversations with the company. Strong oil prices and rapid debt reduction
could accelerate the timeline for a more wholesome conversation on shareholder
returns. Debt reduction is the top priority, but it is not mutually exclusive to
shareholder returns conversation. Therefore, considering strong FCF visibility, we
think management could demonstrate its commitment to returning cash with
earnings.