Sitio Royalties (STR) Update - July 16

[dan_s]

STR closed at $26.04 on July 14.

TipRanks: "In the last 3 months, 3 ranked analysts set 12-month price targets for STR. The average price target among the analysts is $32.00. The three most recently updated price targets are $30, $32 and $34."

My updated valuation is $32.

STR is one of four minerals companies in our High Yield Income Portfolio. It has the most aggressive growth strategy, increasing production via acquisitions by 245% in 2022 and thanks to the merger with Brigham Minerals that closed 12/29/2022, they are on pace for YOY production growth of 132% in 2023.

I really like their production mix of approximately 50% oil, 34% natural gas and 16% NGLs. I also like the fact that a lot of their minerals are in the Permian Basin where drilling activity will remain high. My 2024 forecast is probably based on production that is too low (just 38,000 Boepd).

It is a C-Corp that pays variable dividends of $2.75 in 2022 and $1.96 in 2023 based on my forecast. Less than 20% of their production is hedge, so rising oil prices should significantly increase dividends in 2024.