On Tuesday, Evercore ISI analysts have increased the price target for Viper Energy (NASDAQ:VNOM) shares to $58.00 from the previous target of $45.00, while maintaining an Outperform rating on the stock.
The revision follows Viper Energy's strong performance in the past year, where it saw a 65% increase compared to the broader energy sector and Diamondback Energy (NASDAQ:FANG), which gained 5.4% and 12.5% respectively.
Viper Energy's notable outperformance has been attributed to several factors, including consistent quarterly execution and the impact of being added to the Russell 1000 Index in July, which led to increased passive investment flows. This was further bolstered by the company's transition to a full C-Corp status in late 2023. Additionally, the accretive acquisition of Tumbleweed in September and the anticipated drop down of EER minerals are expected to sustain the company's momentum.
Evercore ISI revisited the valuations set in July, now incorporating expectations related to the drop down into their Net Asset Value (NAV) and price target calculations, which were previously excluded. The drop down is particularly appealing due to the potential for multi-year organic production growth and the enhancement of Viper Energy's already competitive cost structure. The firm also highlighted Viper Energy's commitment to returning 75% of its cash flow to investors.
The analysts further noted that since July, Viper Energy has continued to outperform Diamondback Energy, providing a more substantial window to achieve accretion for both entities. Looking beyond the drop down, Evercore ISI anticipates that Viper Energy will continue to increase its scale and extend its growth outlook.
The firm's strong equity position could potentially open doors to further inorganic growth opportunities that would complement the company's organic growth trajectory. Evercore ISI reiterated their Outperform rating, signaling confidence in Viper Energy's ongoing strategy and growth prospects.
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