Diamondback Energy (FANG) Update - Mar 16

[dan_s]

I have adjusted my forecast/valuation model for FANG to base it on my new commodity price deck, which I showed you in the Saturday podcast.
My valuation increases by $16 to $190/share. < Since March 1st, TipRank shows that seven analysts have updated their price price targets to a range of $147 to $198. Wells Fargo's update on 3/14 is the most recent and the highest price target. Raymond James price target (using oil prices identical to mine) is $190.

FANG does have ~47% of their oil hedged at prices lower than my oil price assumptions, but the percentage hedged declines each quarter and none is hedged after 2023. Plus, most of their hedges are collars with ceilings that increase each quarter.

All of FANG's gas hedges are collars with ceilings of $4.76 to $7.03, so my forecast ngas price assumptions only include the regional price differentials which should be shrinking.

FANG's NGLs ~75,000 bpd are unhedged.

FANG was trading at $124.63 at the time of this post.

PS: The Wall Street Gang loves this stock because it consistently reports production at the high end of guidance and it is going to generate a ton of FCF.

PPS: This is also very bullish for Viper Energy Partners (VNOM), which is controlled by FANG and who's production increases in lockstep with FANG. Viper is a minerals company in our High Yield Income Portfolio that pays variable quarterly dividends tied to their rising cash flow.