Diamondback Energy (FANG) Update - June 16

[dan_s]

FANG was trading at $128.93 when I posted this.

I just finished reviewing my forecast model and our updated profile for Diamondback. This large-cap is truly one of the "Great American Success Stories" and it has a lot more upside for us. My updated current valuation is $177/share.

TipRanks: "In the last 3 months, 14 ranked analysts set 12-month price targets for FANG. The average price target among the analysts is $171.12. The five most recent analysts' price target updates range from $166 to $176."

Since our last profile update, Diamondback has decided to lower their variable dividends and double up on their AGGRESSIVE stock repurchase program. The Board has doubled the funding for stock buybacks to $4 Billion. You can count on dividends staying at the base level of $0.80/quarter until the stock buybacks are completed.

Obviously, over time the stock buybacks should a have a significant impact on the share price.

In 2022 the Company reported earnings per share of $24.42 and adjusted operating CFPS of $36.28.
My 2023 forecast based on the midpoint of the Company's guidance and the outstanding share count of 181.6 million as of 3/31/2023 shows EPS of $19.14 and operating CFPS of $32.29

Diamondback should generate at least $3 billion of free cash flow from operations this year and it has an incredible amount of running room in the Permian Basin where it has over 6,000 net development drilling locations that can generate double digit rates of return even if oil prices are down to $50/bbl.

I should move FANG back into the Sweet 16, since it is clearly more of a growth stock than a high yield stock. The Company's production was 385,965 Boepd in 2022 and it is on-track to exit this year with production of ~450,000 Boepd.

On December 31, 2022 Diamondback's PV10 net asset value of just proved reserves (1P) was $144.41/share. The Board of Directors decision to aggressively buy back shares is because they believe their stock is grossly undervalued. So do I. The PV10 NAV based on 2P reserves should be over $200/share at the end of this year.

I am now working on the profile for Viper Energy Partners LP (VNOM), a subsidiary of Diamondback.

[mkarpoff]

VNOM has been getting hammered. Any idea why?

[dan_s]

Viper and Diamondback are basically unhedged, so their revenues and cash flow were down from Q4 to Q1, but they are both going to report strong production growth going forward. Buy the dip. These are very high-quality companies.

Updated profiles for both companies have been posted to the EPG website. FANG is for those of you seeking capital gains because the company has a very aggressive stock buyback underway. VNOM is for those of you investing for high yield dividends + steady growth.