WTI and Brent Crude Oil

Diamondback Shares Gain as Q1 Profits Top Estimates; Target Price $96

Diamondback Energy shares rose about 3% on Monday after the oil and natural gas company reported better-than-expected profits in the first quarter of 2021 as the rollout of COVID-19 vaccines fueled hopes of restrictions being eased, boosting fuel demand.

The Midland, Texas-based company said its net income was $220 million, or $1.33 per diluted share. The adjusted net income was $379 million, or $2.30 per diluted share. That was higher than the Wall Street consensus estimates of $1.89 per share.

The company said its first-quarter 2021 consolidated adjusted EBITDA was $845 million. Adjusted EBITDA net of non-controlling interest was $836 million. Diamondback also declared a cash dividend of $0.40 per common share.

Diamondback Energy shares rose about 3% to $83.92 on Monday. The stock surged more than 70% so far this year.

Analyst Comments

Diamondback Energy’s (FANG) 1Q was largely pre-released though 8% lower unit costs drove a 13% EBITDA beat and capex was in line. DCPS missed by -9% due to deriv proceeds that flowed through CFF and merger expenses. Notably, FANG sold QEP’s Bakken for $745m, 20% above our est and will accelerate debt paydown. FY21 production guidance was adjusted for asset sales but otherwise reiterated,” noted David Deckelbaum, equity analyst at Cowen.

Diamondback Stock Price Forecast

Eighteen analysts who offered stock ratings for Diamondback in the last three months forecast the average price in 12 months of $96.47 with a high forecast of $115.00 and a low forecast of $82.00.

The average price target represents an 18.03% increase from the last price of $81.73. Of those 18 analysts, 14 rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $107 with a high of $141 under a bull scenario and $61 under the worst-case scenario. The firm gave an “Overweight” rating on the oil and natural gas company’s stock.

“Low cost of supply relative to peers. Pre-dividend breakeven of $23/bbl WTI (pro-forma) is among the lowest in our coverage after 2020 well cost reductions of >20% with peer-leading operating costs. In a higher price environment FANG can deliver outsized cash returns, while at low oil prices downside is tempered by low breakevens,” noted Devin McDermott, equity analyst at Morgan Stanley.

“Line of sight to leverage reduction. We project net debt/EBITDA decreasing from 2.5x at the end of 2020 to 2.2x by the end of 2021 and 1.9x in 2022.  Recent acquisitions and reduced growth rate should address investors’ inventory concerns. Concerns around inventory should begin to subside after recent acquisitions assuming low single digits long-term growth rate.”

Several other analysts have also updated their stock outlook. Diamondback Energy had its price target upped by research analysts at Roth Capital to $115 from $84. The brokerage currently has a “buy” rating on the oil and natural gas company’s stock. Mizuho lifted their price target to $101 from $92 and gave the company a “buy” rating. Siebert Williams Shank reaffirmed a “buy” rating and issued an $89 price target.

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