Matador Resources (MTDR) Price Target - Oct 27

[dan_s]

Truist Financial's price target raised to $96

Neal Dingmann's Notes:

MTDR announced a 3Q22 beat, raised FY22 production guidance, but lowered differential
guidance given Waha issues despite limited exposure. While gas takeaway/pricing concerns
will likely remain a hot topic for most Permian names this quarter, MTDR is mostly covered
on that front leaving FCF allocation as the biggest quagmire. Management fell just short of
telling us how they plan to build the attractive “watch” though we anticipate it will just be a
matter of time before the company makes a meaningful low-cost acquisition or increases
activity again if commodity prices hold at these levels.

No Rush To Install A Shareholder Return Framework
Matador’s growing base dividend has likely helped entice some payout focused
shareholders, however compared to the group, the company remains on the far end of
the spectrum regarding FCF retention. While this strategy may not work for most other
E&P’s, given investors’ tolerance for the plan (as seen in the company’s higher than group
multiple), we continue to favor management’s decision to not lock itself into a restrictive
framework. Instead, we anticipate the company building cash levels while transacting on
small one off bolt-ons in the near-term, and in the next year pursuing an accretive low-cost
transformational acquisition to further increase scale, efficiencies, and FCF/share.

Proactive Summer Planning Mitigated Exposure to Waha
While MTDR’s differential guidance for 4Q22 incorporates reduced pricing from the current
Waha/Henry Hub spread due to unplanned maintenance and the repair of three compressor
stations, MTDR’s summer planning has somewhat mitigated its price exposure. MTDR
anticipated some potential downtime for GCX in 2H22 and reduced volume throughputs
through the system; interestingly, the company did not participate in the GCX expansion
project's open season. The company expects the negative price differential environment to
be temporary, with GCX’s capacity returning to its ~2 bcfpd throughput after the four-day
maintenance period.

Updating Estimates and Reiterating Price Target at $96
Matador beat 3Q22 estimates across the board with EPS, EBITDA, and FCF all coming
in better than expected as higher volumes and lower spend from DE outweighed lower
than our/street pricing estimates resulting in notably higher revenues. Minimal cash taxes
in the quarter also added another ~$20mm to FCF versus our forecasts, but 4Q differential
guidance was disappointing. Capital guidance was reiterated, citing strong efficiencies
including the recently added seventh rig while FY22 volumes were raised yet again. We have
adjusted our model following 3Q22 earnings and updated 2022/2023 forecasts. Specifically,
we have lowered our pricing estimates in 2H22 and raised our production volumes. Our
$96 price target is derived from two equally weighted methodologies, with the first being our
’23 EV/EBITDAX multiple of 4.5x (vs peer 4.5x) applied to our 2023E EBITDAX estimate of
$2,298MM (consensus of $2,102MM) and the second being an FCF/EV Yield assumption
of 9.0%.
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My current valuation of MTDR is $93. Matador is an "Aggressive Growth" company with a lot of upside for us. They keep reporting outstanding well results in the Delaware Basin.

[dan_s]

RBC Capital Markets just raised their price target by $3 to $78 with their "Upside Scenario" of $92.