On Friday, Mizuho Securities exhibited confidence in Matador Resources Company (NYSE:MTDR) shares by increasing its price target to $85 from the previous $83, while reiterating a Buy rating on the stock. The firm acknowledged the strategic fit of Matador's recent acquisition of Ameredev, noting that it aligns with the company's mergers and acquisitions strategy.
The acquisition adds upstream assets in the Delaware Basin, complementing Matador's existing operations, and includes a midstream component which is expected to support robust oil growth.
The analyst from Mizuho highlighted that the transaction is projected to be marginally accretive to Matador's net asset value (NAV), contributing approximately a 3% increase. Despite the slight uptick in near-term leverage, the firm anticipates Matador's net debt to EBITDX ratio to fall below 1.0x by the end of 2025.
The valuation metrics for Matador, including enterprise value to EBITDX and free cash flow to enterprise value for the year 2025, remained largely unchanged, which aligns with the company's statements regarding the fair value of the acquisition.
Mizuho's updated price target is based on a net asset value approach, reflecting the modestly accretive nature of the Ameredev deal. The firm's outlook suggests that the acquisition is a quality investment at a fair price, supporting Matador's growth trajectory in the oil sector. The Buy rating remains in place, indicating a positive view of Matador's stock performance potential.
The Delaware Basin, where the acquired assets are located, is a region known for its oil-rich reserves. Matador's strategic move to expand its footprint in this area is expected to contribute to its differentiated oil growth strategy. The inclusion of a midstream component in the acquisition could further enhance the company's operational efficiency and growth prospects.
In summary, Mizuho's price target adjustment reflects a favorable view of Matador Resources' strategic acquisition and its potential impact on the company's financial and operational performance. The firm maintains its Buy rating, suggesting continued optimism in the stock's future.
In other recent news, Matador Resources has made noteworthy strides in its operations, with a significant $1.9 billion acquisition of oil and natural gas properties from Ameredev II Parent's subsidiary. The cash-funded deal, expected to close by the third quarter of 2024, will enhance Matador's presence in the Delaware Basin. This includes a 19% interest in Piñon Midstream and is expected to be accretive to key financial metrics, including a forward one-year Adjusted EBITDA projection of $425 to $475 million.
KeyBanc has maintained its Overweight rating on Matador Resources, citing the company's recent acquisition and its potential to enhance the company's enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and enterprise value to cash flow (EV/CF) by 2025.
BMO Capital Markets also maintained its Outperform rating on Matador Resources, projecting a 15% increase in cash flow per share and a 22% rise in free cash flow by 2025 due to the acquisition.
Truist Securities has increased its price target for Matador Resources shares to $91 from $87, maintaining a Buy rating. The firm anticipates the acquisition to significantly improve Matador's free cash flow after the projected third-quarter 2024 completion. These are the recent developments that investors should keep an eye on for Matador Resources.
InvestingPro Insights
Mizuho Securities' recent endorsement of Matador Resources is echoed by several metrics and InvestingPro Tips that reflect the company's solid performance and potential for growth. With a market cap of approximately $7.12 billion, Matador's P/E ratio stands at 7.74, indicating a potentially undervalued stock when compared to industry standards. The company's revenue growth in Q1 2023 was a robust 39.68%, showcasing significant quarterly growth and underscoring the strategic benefits of the Ameredev acquisition.
InvestingPro Tips highlight that Matador has raised its dividend for three consecutive years and is profitable over the last twelve months, reinforcing the company’s financial health and commitment to shareholder returns. Moreover, analysts predict the company will remain profitable this year, aligning with Mizuho's positive outlook. While the stock has experienced some price volatility, the strong return over the last five years indicates resilience and long-term value for investors.
Subscribers to InvestingPro can access additional tips that delve deeper into Matador’s financials and market performance. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With these insights, investors can make more informed decisions about the potential of Matador Resources in their portfolios.
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