Diamondback Energy (FANG)

dan_s · Post by **dan_s** » Fri Apr 24, 2015 5:05 pm

I took a hard look at my forecast model for FANG this afternoon. I have increased my valuation by $8.05 to $88.50/share. First Call's Price Target seems to go up each week and it is now at $91.15.

FANG is generating strong cash flow from operations, which should fund most, if not all of this year's capital program. YOY production growth should be 35% to 40% and they have several years of low risk drilling inventory. 55% of this year's oil production is hedged with SWAPs at $88/bbl.

Another reason it deserves a high multiple is the strong cash flow it gets from its large stake in Viper Energy Partners LP (VNOM).

FANG is a pure play on the Permian Basin, which makes it a prime takeover target.

I also recommend Permian companies CPE, LPI and MTDR. LPI is a top candidate for promotion to the Sweet 16. They are also prime takeover targets.