Matador Resources (MTDR) Valuation Update - July 27

[dan_s]

I have updated my forecast/valuation model for MTDR's outstanding Q2 results and updated guidance.
My current valuation increases by $10 to $98/share.

MTDR was trading at $53.81 at the time of this post.

Three energy sector analysts have updated their price targets this morning to $70, $87 and $95.

Matador's production guidance is conservative, and they regularly beat the top end of their guidance range, so my forecasts for Q3 and Q4 are based on the top of their fresh guidance. They do drill and complete new wells in bunches to save on D&C costs (very wise), so their production surges when a new pad comes online. They are now running seven drilling rigs and new pads come online in mid-Q3 and mid-Q4. I expect them to exit 2022 with production of ~115,000 Boepd, which compares to their exit rate of ~90,000 Boepd at year-end 2021.

I have raised my valuation multiple from 5.5 to 6.0 X Operating Cash Flow Per Share, which is still conservative for a company of this size and quality.

Their balance sheet and hedge book are in good shape.
Realized prices (net of cash settlements on their hedges) in Q2 were $8.51/mcfe of gas and $105.21/bbl of oil

FCF in 2022 should be approximately $1.3 billion based on my forecast.

Operating CFPS:
2021 Actual = $8.95
2022 Forecast = $18.72
2023 Forecast = $18.96 (based on $100 WTI and $5.00 HH gas)

[dan_s]

Note from Truist Financial

Matador Resources Company (MTDR, $51.29, Buy) -
2Q22 Beat and 2022 Guide Raise as Shareholder Returns
Inflection Point Approaches - Neal Dingmann

[dan_s]

Note from Stifel

Matador Resources Company (MTDR, $51.29, Buy; Target $87.00)
- Accelerating Activity Following 2Q Beat - Michael S. Scialla
- We view the release as neutral.
The positives include: i) 2Q FCF was 12% above consensus as CFPS was 2% above
and capex was 26% below; ii) as previously announced, MTDR repaid the remaining
$50MM outstanding on its credit facility and doubled its annual base dividend to $0.40/
share during the quarter; iii) outstanding bonds were reduced to $892MM (as of today)
from $1.05B following open market repurchases; iv) divestitures of some operated
Eagle Ford assets and a small portion of MTDR's non-operated Haynesville assets
fetched proceeds of $35MM. The negatives include: i) updated 2022 capex/production
guidance were 9% above/inline with consensus following the addition of a 7th rig; ii)
3Q22 capex guidance was 41% above consensus. In summary, while MTDR posted
another strong beat, we suspect some investors would prefer visibility on a competitive
return of capital framework over accelerated activity. < MY TAKE: Matador's strategy over the years has been "Aggressive Growth". Their leadership team can't standby and miss out on the recent surge in oil & gas prices. I agree as long as their growth is fully funded by operating cash flow. They are reporting outstanding well results and they are going to generate over $1.3 billion of FCF even with adding a 7th rig.