From Stifel on 12/19/2018: Diamondback Energy, Inc. (FANG, $87.93, Buy; Target $180.00)
Diamondback delivers disciplined 2019 guidance and increases dividend -
by Derrick Whitfield
After the close on December 18, Diamondback released its 2019 capital and production guidance and announced an increase to the annual cash dividend. We view this release as positive and representative of a shift in Diamondback's capital allocation strategy from maximizing growth within cash flow to disciplined growth within cash flow with a growing return of capital to shareholders.
We believe the reduction in 2019 activity was necessary based on current commodity prices and believe management's actions are consistent with investor sentiment.
In our view, Diamondback is a model citizen for the Bellwether group. FANG is also one of our top ideas based on its advantaged model (shareholder friendly stock with differentiated growth and cost of supply) and its unique ability to fund an increasing return of capital through excess cash flow and a pipeline of expected synergies.
We expect the stock to outperform on this capital efficient and shareholder-friendly plan.
Diamondback Energy (FANG) Update - Dec 19
Diamondback Energy (FANG) Update - Dec 19
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Diamondback Energy (FANG) Update - Dec 19
From TPH:
FANG 2019 Guidance
Positive on capital efficiency vs. consensus, capital discipline, and dividend increase
Sector: NAm E&P | Ticker: FANG | Recommendation: BUY | Target: $137 | Close: $87.93
Good to see guidance reflect better capital efficiency vs. Street with an emphasis on capital discipline and a dividend increase to boot. On capex, 2019 spending is to range from $2.7-3.1B (TPHe/Street $2.7B/$3.3B) for 275-290mboepd total production (TPHe/Street 278/288), of which ~195mbpd is oil-only at the midpoints (vs. TPHe/Street 190/198). D&C guidance is $2.35-2.7B (TPHe ~$2.35B) and includes a rig count reduction to 18-22 from the pro-forma starting point of 24, for 280-320 gross (TPHe ~330) and 240-280 net (TPHe ~260) 9,200' completions. Importantly, management is showing the capital discipline that it's been messaging with the immediate reduction of 3 rigs and the release of 2 (of 10) crews plus plans to reduce further if commodity prices warrant. This highlights that budgeting isn't simply maxing out rigs to match cash flow, but instead, thoughtfully managing maintenance requirements (14 rigs to flatten Q4'19/Q4'18), then shareholder returns (annual dividend +50% to 75c/shr, 0.8% yield), followed by steady acceleration as operations merit. Continue to like as a top pick given management's strategy and valuation (TPHe 56% upside to our $137 3P NAV; 4.3x 2020 EV/EBITDA at $53.73/bbl WTI and $61.55/bbl Brent).
Two day marketing trip to NYC highlighted that investors remain squarely focused on capital allocation thoughts heading into 2019. Sliding oil prices and growing concerns on global demand are pushing clients to further reduce risk in stock selection and portfolio allocation. The list of “walking dead” names seems to be growing by the day as small cap equities that used to garner relevant interest are persona non grata given trading liquidity, balance sheet concerns, outspend issues, scale, or all of the above. Large caps are therefore dominating meetings as investors look to find conservative management teams that should be able to execute through the cycle and provide relative outperformance in a weakened crude tape. We think CXO and FANG best fit that mold in large cap growth, while APC takes the top spot in large cap value.
FANG 2019 Guidance
Positive on capital efficiency vs. consensus, capital discipline, and dividend increase
Sector: NAm E&P | Ticker: FANG | Recommendation: BUY | Target: $137 | Close: $87.93
Good to see guidance reflect better capital efficiency vs. Street with an emphasis on capital discipline and a dividend increase to boot. On capex, 2019 spending is to range from $2.7-3.1B (TPHe/Street $2.7B/$3.3B) for 275-290mboepd total production (TPHe/Street 278/288), of which ~195mbpd is oil-only at the midpoints (vs. TPHe/Street 190/198). D&C guidance is $2.35-2.7B (TPHe ~$2.35B) and includes a rig count reduction to 18-22 from the pro-forma starting point of 24, for 280-320 gross (TPHe ~330) and 240-280 net (TPHe ~260) 9,200' completions. Importantly, management is showing the capital discipline that it's been messaging with the immediate reduction of 3 rigs and the release of 2 (of 10) crews plus plans to reduce further if commodity prices warrant. This highlights that budgeting isn't simply maxing out rigs to match cash flow, but instead, thoughtfully managing maintenance requirements (14 rigs to flatten Q4'19/Q4'18), then shareholder returns (annual dividend +50% to 75c/shr, 0.8% yield), followed by steady acceleration as operations merit. Continue to like as a top pick given management's strategy and valuation (TPHe 56% upside to our $137 3P NAV; 4.3x 2020 EV/EBITDA at $53.73/bbl WTI and $61.55/bbl Brent).
Two day marketing trip to NYC highlighted that investors remain squarely focused on capital allocation thoughts heading into 2019. Sliding oil prices and growing concerns on global demand are pushing clients to further reduce risk in stock selection and portfolio allocation. The list of “walking dead” names seems to be growing by the day as small cap equities that used to garner relevant interest are persona non grata given trading liquidity, balance sheet concerns, outspend issues, scale, or all of the above. Large caps are therefore dominating meetings as investors look to find conservative management teams that should be able to execute through the cycle and provide relative outperformance in a weakened crude tape. We think CXO and FANG best fit that mold in large cap growth, while APC takes the top spot in large cap value.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Diamondback Energy (FANG) Update - Dec 19
Imperial Capital 12/20/2018
We are maintaining our Outperform rating on FANG shares and lowering our one-year price target to $140 from $170 following the company’s 2019 capital and production guidance that was released on 12/19/18. Our price target is about 55% above the recent share price. We believe FANG’s 2019 plans provide solid growth within cash flows in the current environment and should allow the company to continue developing its assets prudently while returning capital to shareholders as it remains opportunistic in the current environment.
We are maintaining our Outperform rating on FANG shares and lowering our one-year price target to $140 from $170 following the company’s 2019 capital and production guidance that was released on 12/19/18. Our price target is about 55% above the recent share price. We believe FANG’s 2019 plans provide solid growth within cash flows in the current environment and should allow the company to continue developing its assets prudently while returning capital to shareholders as it remains opportunistic in the current environment.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group