On Thursday, Bernstein initiated coverage on Diamondback Energy (NASDAQ:FANG) with an Outperform rating and a price target of $243.00. The firm's assessment places the stock's value 8% above the consensus and suggests a positive outlook for the energy company.
The new price target is based on a 6.5 times enterprise value (EV) to the projected 2025 adjusted EBITDA of $12.1 billion. The analysis also includes an additional $2.0 billion of dividends to represent the total shareholder return. Bernstein's bottom-up net asset value (NAV) model estimates the combined value of Diamondback Energy and its EER Midland position to exceed $65 billion.
Bernstein believes that Diamondback Energy's scale in the Midland region warrants a premium valuation. The premium is justified by operational efficiencies in drilling and completions, as well as a modest scarcity and takeover premium. Consequently, the firm has applied a 6.5 times multiple to the energy company's EV, aligning with its valuation approach for other favored companies in the sector.
In other recent news, Diamondback Energy has made significant moves that have caught the attention of investors and analysts. The oil and natural gas company agreed to sell WTG Midstream Holdings to Energy Transfer (NYSE:ET) for approximately $375 million, a deal expected to be finalized in the third quarter of 2024. The proceeds from this sale will be used to reduce debt from Diamondback's upcoming merger with Endeavor Energy Resources.
This merger is a part of the recent surge in all-stock M&A deals, with Diamondback's acquisition of Endeavor Energy estimated at $26 billion. The deal is set to close in the fourth quarter of 2024.
In the realm of analyst notes, RBC Capital Markets has raised Diamondback Energy's stock price target from $195 to $220, citing the company's operational efficiency. On the other hand, Wells Fargo trimmed its stock target for the company from $227 to $224, due to adjustments based on second-quarter guidance and various operational factors.
In its Q1 2024 earnings call, Diamondback Energy outlined strategies to mitigate natural gas pricing softness and improve capital efficiency. The company also highlighted its focus on constructing more pipelines to alleviate bottlenecks in Permian gas.
InvestingPro Insights
As Diamondback Energy (NASDAQ:FANG) garners attention with Bernstein's optimistic coverage, real-time data from InvestingPro provides additional context for investors. The company's market capitalization stands at a robust $33.74 billion, reflecting its significant presence in the energy sector. With a P/E ratio of 10.67 based on the last twelve months as of Q1 2024, Diamondback Energy trades at a valuation that may attract investors looking for reasonable earnings multiples in the current market environment.
The firm's commitment to shareholder returns is evident from its track record of maintaining dividend payments for seven consecutive years, boasting a high dividend yield of 4.96% as of the latest data. Moreover, Diamondback Energy's stock has experienced a strong return over the last year, with a price total return of 52.43%, underscoring the potential for continued investor interest.
InvestingPro Tips highlight that while some analysts have revised their earnings estimates downwards for the upcoming period, the company is still expected to be profitable this year and has been profitable over the last twelve months. Additionally, the stock has had a large price uptick over the last six months, further supporting Bernstein's positive outlook. For a deeper dive into Diamondback Energy's performance and future prospects, investors can explore more InvestingPro Tips, with additional insights available at Investing.com/pro/FANG. Don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking the full suite of InvestingPro features and tips.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.