On Thursday, BMO Capital Markets sustained their positive stance on Matador Resources Company (NYSE:MTDR), maintaining an Outperform rating and a $79.00 price target. The firm's outlook follows Matador's recent acquisition of Ameredev for $1.9 billion, a strategic move to expand its presence in the Delaware Basin and to acquire a roughly 19% interest in Pinon Midstream.
The acquisition, which was entirely cash-funded, is seen as a continuation of Matador's approach to combine moderate organic growth with strategic mergers and acquisitions. BMO Capital highlights that the company is well-positioned to benefit from this transaction due to its recent capital markets activities, which have kept leverage low at 1.3 times at the close of the deal. They project this leverage to drop below 1.0 times by the end of 2025.
According to BMO Capital, the wells in the acquired portfolio are competitive within Matador's existing operations, suggesting that the deal not only expands the company's inventory but also presents potential for midstream synergies. In light of the acquisition, BMO Capital has updated its estimates, forecasting a 15% increase in cash flow per share (CFPS) and a 22% rise in free cash flow (FCF) by the year 2025, based on current commodity price projections.
The firm also notes that despite the significant cash outlay for the acquisition, the expected enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio for Matador Resources remains relatively unchanged. This indicates that the financial impact of the acquisition is anticipated to be neutral to Matador's valuation metrics in the eyes of the analysts at BMO Capital.
In other recent news, Matador Resources has made notable strides in its operations. The energy company announced a strategic acquisition of oil and natural gas properties from a subsidiary of Ameredev II Parent, LLC, valued at $1.9 billion. This acquisition, expected to close by the third quarter of 2024, will enhance Matador's presence in the Delaware Basin, adding 431 gross operated locations to its portfolio and expanding its net acreage in the region to over 190,000.
The newly acquired assets, located in New Mexico and Texas, are projected to produce between 25,000 and 26,000 barrels of oil equivalent per day in the third quarter of 2024. Matador estimates the total proved oil and natural gas reserves of the Ameredev properties to be 118 million BOE as of May 31, 2024, with a PV-10 valuation of approximately $1.66 billion.
In terms of financial performance, Matador anticipates the transaction to be accretive to key financial metrics, with a forward one-year Adjusted EBITDA projection of $425 to $475 million. BMO Capital Markets has maintained its Outperform rating for Matador, citing the company's consistent execution of profitable growth strategies and robust financial standing.
Truist Securities also increased its price target for Matador Resources shares to $91 from $87, while maintaining a Buy rating on the stock. The firm highlighted Matador's strategic acquisition as a move that will significantly improve the company's free cash flow (FCF) following the projected third-quarter 2024 completion.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.