Diamondback Energy (FANG) Valuation Update - May 23
Posted: Mon May 23, 2022 12:38 pm
I have updated my forecast/valuation model for FANG. I have increased by current valuation by $14 to $210/share.
Why:
> Diamondback is generating a lot of free cash flow from operations. On pace to generate over $4.3 billion of FCF this year ($24.38/share).
> They have paid off a lot debt and their strong balance sheet and outstanding leasehold position in the Permian Basin deserves a higher valuation multiple.
> I am just using a 6.5 X annualized operating cash flow multiple to value this stock. By year-end it should deserves an 8X multiple.
> This morning my contact at Stifel Nicolaus sent me their updated price target for FANG of $222.00.
> FANG's "Base + Variable" dividend for Q1 was $3.05 for annualized yield of 9.2% based on the current share price.
> Based on my model, their variable dividends should continue to go up.
FANG could be moving to our High Yield Income Portfolio, but I do believe they will go back to "Aggressive Growth Mode" in 2023, although my forecast model only assumes 2.1% YOY production growth in 2023
Why:
> Diamondback is generating a lot of free cash flow from operations. On pace to generate over $4.3 billion of FCF this year ($24.38/share).
> They have paid off a lot debt and their strong balance sheet and outstanding leasehold position in the Permian Basin deserves a higher valuation multiple.
> I am just using a 6.5 X annualized operating cash flow multiple to value this stock. By year-end it should deserves an 8X multiple.
> This morning my contact at Stifel Nicolaus sent me their updated price target for FANG of $222.00.
> FANG's "Base + Variable" dividend for Q1 was $3.05 for annualized yield of 9.2% based on the current share price.
> Based on my model, their variable dividends should continue to go up.
FANG could be moving to our High Yield Income Portfolio, but I do believe they will go back to "Aggressive Growth Mode" in 2023, although my forecast model only assumes 2.1% YOY production growth in 2023