Matador Resources (MTDR) Q1 Results - April 28

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Matador Resources (MTDR) Q1 Results - April 28

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Notes below from Neal Dingmann at Truist Financial. He rates MTDR a BUY with a price target of $72.
Matador is an Aggressive Growth company that is now funding all growth with operating cash flow.


Matador Resources Company (MTDR)
Solid Setup for Material 2H23 and 2024 Growth

We have increased our estimates after the 1Q23 release as the recent operational update
combined with our forecasts suggest production could be higher than our prior estimates
and company guidance. Our buildout suggests Matador’s FY23 D&C costs at $1,125/ft are
competitive with its peers with the potential for further incremental efficiencies continuing.
We continue to believe the company receives insufficient credit for its midstream operations
that strategically expanded with the Advance deal, given the material scale of operations
and the extremely limited downtime unlike other nearby midstream ops.

We anticipate no change to the higher growth but lower shareholder return story, which we
believe sets the company up smartly for future commodity price volatility.

Operational Efficiencies Drive Improved Production Outlook, Modest Capex Reductions

Highlighted by an exceptionally strong 1Q23 D&C program where MTDR exceeded its
initial guidance for the number of completions turned-in-line (TIL) with ~21 net TILs, we
anticipate production to trend higher than the company’s FY23 production midpoint, though
the company remains on course with our forecasted completions for the year at ~96 net
TILs. While MTDR beat our 1Q23 capex forecast due to operational efficiencies, including
reduced drill times and water consumption, as well as increased use of dual-fuel and
Simul-fracs, our FY23 capex forecast has been modestly trimmed but remains on track at $1.4B
as large-ticket cost items such as rigs, frac crews and steel-related materials are holding
firm. Recognizing the operational cost efficiencies should continue through the year, MTDR
does plan to complete a staggered 21-well program in 3Q23 that would be the largest well
package brought online in the company’s history. With the Advance deal closed, our drilling
outlook remains on-track with the 8th rig added for the remainder of the year to drill the 21-
well program on the Advance acreage as previously noted.

Updating Estimates and Reiterating Our $72 Price Target

MTDR reported higher 1Q23 earnings and FCF than Truist Securities and Street driven
primarily by higher than expected production and lower cost, which was mostly timing
related. While the company did not change 2023 guidance range, it now expects production
will be on the high end. Though 2Q23 CAPEX guidance was slightly higher than the prior
update, the 1Q23 beat more than makes up for the difference. We have updated our
estimates for 1Q23 and more realistic prices, costs, and volumes this year. We reiterate
our $72 price target that is derived from two equally weighted methodologies, with the first
being our ’24 EV/EBITDAX multiple of 5.5x (5.1x peer group average) applied to our 2024E
EBITDAX estimate of $2,471MM ($2,286MM consensus) and the second being an FCF/EV
Yield assumption of 10.0%.
Dan Steffens
Energy Prospectus Group
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