Matador Resources (MTDR) is Keith Kohl's Top Pick - April 30

[dan_s]

Here is Keith Kohl's take on Matador Resources, which was highlighted in his April 30th "Energy Investor" newsletter.

If there’s one oil stock in our model portfolio that exemplifies what a buying
opportunity is in the oil sector, it’s Matador Resources.

As you know, Matador Resources is an independent energy company that explores,
acquires, develops, and produces crude oil and natural gas resources in both the
Delaware Basin in southeast New Mexico (part of the greater Permian Basin) and the
Eagle Ford shale in Texas.

The company controls approximately 200,000 net acres in the Delaware Basin, with
production at all-time highs. Matador also maintains a strong balance sheet, holds
record oil and natural gas reserves, as well as a 10 to 15 year inventory of oil and gas
locations. So, let’s take a look at why we’re so bullish on Matador’s future…

Once again, Matador outperformed Wall Street expectations after posting non-GAAP
earnings of $1.99 per share. Total production for the quarter averaged 198,631 boepd,
which represents a solid 33% year-over-year increase, with crude oil output averaging
115,030 barrels per day.

Operationally, the company turned 40 gross (33.5 net) operated wells to sales during
the quarter. Keep in mind that these guys are operating in one of the premier oil
regions in the world, and Matador currently has roughly 1,869 locations that can tap
into 13 formations and over 20 producing zones.

Now, due to the low oil price environment we’re currently in, it’s natural to expect
Matador to cut back on drilling activity. So, the company’s plan is to reduce its drilling,
completing, and equipping capital expenditures by approximately $100 million.
Although the company started off the year with nine rigs in the field, it expects to
drop one of those rigs over the next few months. If prices rebound, Matador has
the flexibility to deploy that ninth rig again, as well as expand its ‘U-Turn’ drilling
program to boost efficiencies.

And when it comes to productivity, Matador’s wells are the best you’ll see in the play.
Those U-Turn wells can bring in savings of around $3 million per well.

Until we see more strength in oil prices, the company reported this month that it has
taken precautionary steps during this volatility.

Here’s a look at what those steps include:
• Repayment of $190 million in borrowings under Matador’s credit facility during
the first quarter of 2025;
• Sale of non-core assets and other transactions for approximately $440 million
(inclusive of potential drilling incentives) during the fourth quarter of 2024
and the first quarter of 2025, including the sale of Matador’s 19% ownership
interest in the parent company of Piñon Midstream, LLC for approximately
$115 million, the sale of the last portions of our Eagle Ford positions for
approximately $30 million, and the contribution of Pronto Midstream, LLC
(‘Pronto’) to San Mateo Midstream, LLC (‘San Mateo’) for an upfront cash
payment to Matador of approximately $220 million and the ability to earn
additional drilling incentives of up to $75 million;
• Execution of new hedges to further protect Matador’s balance sheet;
• Drilling rig and other service contracts structured with the optionality to
quickly adjust Matador’s activity based upon market conditions; and
• Securing inventory in advance for steel goods such as casing, valves and surface
equipment through the third quarter of 2025, thereby mitigating near-term
steel tariff impacts.

I’ll admit it hasn’t been easy watching Matador’s shares hit a fresh 52-week low a few
weeks ago as WTI prices plunged below $60/bbl. However, I can’t help but see this as
a huge buying opportunity, with shares far too attractive to overlook.

Simply put, shares feel incredibly cheap at current price levels… and we’re not the
only ones that feel that way. The company’s management team sees the exact same
opportunity that we do. During the first quarter of 2025, Matador’s Directors and
Officers bought $1.6 million in shares. Matador’s CEO even noted in the latest
earnings call that he has never sold a share.

The market’s panic has once again opened up a window for us. Considering that the
stock is trading today with a market cap just under $5 billion, and Matador’s CEO also
mentioning that they feel the company has over $11 billion in assets, this price is a
steal.

Of course, the quarterly dividend is the cherry on top, too. Matador announced
that its next dividend of $0.3125 per share will be paid out on June 6, 2025, to all
shareholders on record as of May 9th.

Strong revenue, solid growth, and high profitability — things are only going to get
better from here as we head through the second half of 2025.

Matador Resources (NYSE: MTDR) is rated a “Strong Buy” under $65.
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My current valuation of MTDR is $84.00, which is just 4.25 X annualize operating cash flow per share. That is a very conservative valuation multiple for a company of this size and quality of "Running Room" in the Delaware Basin.
On April 28th four respected energy sector analysts submitted new price targets to TipRanks. They all rated MTDR a BUY with price target of $55, $62, $65 and $80 < by Wells Fargo.