Matador Resources (MTDR) Valuation Update - Apr 24

[dan_s]

I now expect Matador's 2024 production to meet (likely exceed) the top of the guidance range put out in February of 153,000 to 159,000 Boepd (91,000 to 95,000 BOPD).

Matador's hedges are just basis swaps on some of their natural gas, so only minor impact on their realized commodity prices.

They report natural gas and NGLs on a combined basis, which is why their realized natural gas price during Q1 was so high at $2.97/mcfe. It compares to the average HH ngas price of $2.10/MMBtu during Q1. Note that $2.10 is higher than $2.00, which is the benchmark price that I am using in all of my forecast for Q1 2024. Per Matador, WTI averaged $77.58/bbl in Q1, also a bit higher than $77, which what my forecasts are based on. < I now expect all of the Sweet 16 to beat First Call EPS forecasts for Q1.

My current valuation of MTDR increases by $3.50 to $90.00 per share. < 5X annualized operating cash flow per year for 2023-2025, with 2024 CFPS double weighted. A higher multiple is justified by the Company's strong balance sheet, rising operating cash flow and free cash flow and its high-quality "Running Room" in the Delaware Basin.

Since Matador announced Q1 results and updated guidance late on Tuesday, 5 high rated energy sector analysts have submitted updated price targets to TipRanks. They all rate the stock a BUY with price targets of $90, $90, $85, $78 and $62. < It is possible that the $62 target (from Benchmark) is an input error by TipRanks since he does rate it a BUY and the stock is trading today at $64.85.

Matador is currently running 8 operated drilling rigs. It is an "Aggressive Growth" company with production growth of 22.4% in 2022 and 24.9% in 2023. They like to "Under-Promise and Over-Deliver" on their production guidance. < The Wall Street Gang loves this.

Based on my forecast, they should generate $2.2 billion of operating cash flow and over $750 million of free cash flow this year. If WTI averages $85 in 2025, Matador's operating cash flow should increase to over $2.7 billion.