Diamondback Energy (FANG) Update - Jan 25

[dan_s]

In the last 3 months, 17 ranked analysts set 12-month price targets for FANG. Their valuations range from $116 to $189. The average price target among the analysts is $159.76.
Three most recent reports submitted to Reuters:
> Barclays on 1/16 at $189
> BMO Capital on 1/11 at $130
> Oppenheimer on 12/24 at $158

The big news for FANG is the merger with Energen that closed on 11/29/2018 that doubles their production from Q3 2018 to Q1 2019. It now appears that the impact of the merger is fully baked into the First Call forecasts for revenue, earnings per share and operating cash flow per share.

Diamondback has issued production guidance for 2019 of 275,000 to 290,000 with approximately 69% crude oil. They normally "under-promise and over-deliver", so my valuation based on 280,000 Boepd in 2019 is likely too conservative.

Diamondback is a pure play on the Permian Basin so 1H2019 results will be impacted a bit by the West Texas pipeline takeaway capacity issue.
They should more than make up for it in 2H2019.

Energen had some nice hedges in place for 2019 (20,700 BOPD at $61.14/bbl).

My valuation of FANG is $162/share with lots of upside if oil prices go higher.