On Monday, Truist Securities increased its price target for Diversified Energy Co. (NYSE:DEC) shares from $18.00 to $20.00, while reiterating a Buy rating on the stock. The adjustment reflects a revised financial model that incorporates updated forecasts for the years 2024 through 2026.
The analyst at Truist Securities has revised the company's price deck, which has led to an updated evaluation of Diversified Energy's financial outlook. The new $20.00 price target is based on two main valuation methodologies, both given equal weight in the assessment.
The first method involves applying a 5.5x multiple to the company's estimated 2025 EBITDAX (Earnings Before Interest, Taxes, Depreciation, Amortization, and Exploration expenses) of $420 million. This multiple is above the peer average of 3.9x, indicating a more optimistic view of Diversified Energy's earnings potential compared to its competitors. The second method relies on a Free Cash Flow to Enterprise Value (FCF/EV) Yield assumption of 10.0%.
The current consensus among analysts for Diversified Energy's 2025 EBITDAX stands at $481 million. Truist's estimate is slightly more conservative but still supports a positive outlook for the energy company's financial performance in the coming years. The price target increase suggests confidence in Diversified Energy's ability to outperform within its sector.
In other recent news, Diversified Energy Company has expanded its presence in Texas with a $106 million acquisition of natural gas properties from Crescent Pass Energy. This acquisition, expected to close in the third quarter of 2024, includes operated natural gas properties and related facilities, and is projected to add 38 million cubic feet equivalent per day of production. The acquisition is funded through the issuance of new U.S. dollar-denominated ordinary shares and a senior secured bank facility.
Truist Securities has initiated coverage on Diversified Energy, giving it a Buy rating due to its strong performance in shareholder returns and well-hedged business strategy. The firm also anticipates Diversified Energy's continued activity in the mergers and acquisitions landscape, aligning with the company's history of strategic acquisitions.
In addition, Diversified Energy is set to join the Russell 2000 Index, which is expected to enhance the company's visibility in the U.S. investment community and potentially expand its investor base. This development follows robust first-quarter results and a recent listing on the New York Stock Exchange. These are the recent developments concerning Diversified Energy.
InvestingPro Insights
In light of Truist Securities' updated price target for Diversified Energy Co. (NYSE:DEC), it's worth noting some key metrics that align with the positive outlook. The company boasts a robust market capitalization of $763.19M and an attractive P/E ratio of 1.03 as of the last twelve months ending Q4 2023, suggesting that the stock may be undervalued. Additionally, Diversified Energy has demonstrated a strong commitment to returning value to shareholders, as evidenced by its significant dividend yield of 4.95% and a history of maintaining dividend payments for 8 consecutive years.
InvestingPro Tips highlight that Diversified Energy has experienced a large price uptick over the last six months, with a 31.27% total return. This is coupled with a strong return over the last month of 21.75%, which could signal momentum that aligns with Truist's optimistic price target. For those interested in further analysis, there are additional InvestingPro Tips available to provide deeper insights into DEC's performance and potential. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these valuable tips.
While the company's revenue has seen a decline in the last twelve months, the forward-looking nature of analyst targets, which place the fair value at $18 and InvestingPro's own fair value estimation at $22.93, suggest that there is room for growth. These assessments, when combined with the company's solid financial metrics and shareholder-friendly practices, offer a compelling case for investors considering Diversified Energy Co. as a potential addition to their portfolios.
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