On Monday, Goldman Sachs (NYSE:GS) initiated coverage on Viper Energy (NASDAQ:VNOM), traded on NASDAQ:VNOM, with a Buy rating and set a price target of $70.00. The stock, currently trading at $54.11, has demonstrated impressive momentum with an 82.5% return year-to-date. According to InvestingPro data, the broader analyst consensus remains firmly bullish with a 1.54 rating.
Viper Energy, a subsidiary of Diamondback Energy (NASDAQ:FANG), holds mineral interests in the oil-rich Permian Basin. The company’s unique business model, which requires no capital expenditure, is designed to offer investors a share in commodity exposure while simultaneously providing dividends.
The analyst from Goldman Sachs highlighted Viper Energy's ability to generate dividends through a superior conversion ratio compared to the traditional Exploration & Production (E&P) business model.
Viper Energy receives royalties from oil and gas production on its land, which is contingent on the capital expenditure programs of the operating companies. This structure allows for a higher portion of cash generated from operations to be available for distribution to shareholders.
According to the analyst's review, Viper Energy has an impressive track record of converting approximately 80% of its adjusted EBITDA to free cash flow (FCF). This conversion rate is notably higher than the average rate for traditional E&Ps, which stands at around 40%. This efficient conversion ratio is a significant factor in the analyst's positive outlook on the stock.
The coverage by Goldman Sachs suggests confidence in Viper Energy's business strategy and its potential for shareholder returns. The Buy rating and the $70.00 price target reflect the firm's expectations for VNOM's performance in the market, backed by the company's strong financial metrics and strategic position in the Permian Basin.
Investors and market watchers will be keeping an eye on Viper Energy's stock performance following this new coverage, as the company continues to capitalize on its no capex business model and its role within the broader energy sector. Trading near its 52-week high of $56.76, the stock has shown remarkable strength. For deeper insights into VNOM's valuation and growth prospects, including 12 additional ProTips and comprehensive financial analysis, visit InvestingPro.
In other recent news, Viper Energy Partners (VNOM) has seen sustained organic production growth and the successful completion of the Tumbleweed acquisition. BofA Securities initiated coverage on Viper Energy shares, assigning a Buy rating and a price target of $64.00, indicating a 22% total return potential. The firm's positive stance on Viper Energy is based on the company's unique position within the oil and gas industry, supported by a strong financial sponsor, Diamondback Energy.
The recent merger between Diamondback and Endeavor is expected to enhance Viper's operations, setting the stage for future growth. The company's shareholder return policy remains focused on distributing approximately 75% of available cash. Regarding the company's leverage strategy, CEO Travis Stice mentioned aiming for manageable levels while maintaining a robust competitive position in the mid-cap E&P sector.
The Endeavor transaction, the largest to date for Viper, is expected to quickly reduce debt post-completion, with prospects for additional acquisitions in late 2025.
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