On Monday, Truist Securities adjusted its outlook on Diamondback Energy (NASDAQ:FANG), lowering the price target slightly to $249 from the previous $250 while keeping a Buy rating on the stock. The revision reflects updates to the firm's financial model, including oil price assumptions and forecasts for the years 2024 through 2026.
The new price target is based on a blend of two valuation methods. The first is a 6.0x EV/EBITDAX multiple, which is notably higher than the peer average of 4.1x. This multiple is applied to Truist's estimated EBITDAX for the year 2025, which stands at $12,906 million and surpasses the consensus estimate of $11,385 million.
The second method involves a free cash flow to enterprise value (FCF/EV) yield assumption of 9.0%. This dual approach aims to provide a balanced perspective on the company's value, taking into account both earnings before interest, taxes, depreciation, amortization, and exploration expenses (EBITDAX) and the company's ability to generate cash flow relative to its enterprise value.
Diamondback Energy, an oil and natural gas company, has been under the careful analysis of Truist Securities, which has factored in various elements to arrive at the updated target. The minor adjustment in the price target reflects a nuanced change in the financial landscape and projections that the firm has for Diamondback Energy.
Investors and market watchers will be observing how Diamondback Energy's stock responds to this updated guidance from Truist Securities. The maintenance of a Buy rating indicates a continued positive outlook on the company's performance despite the slight adjustment in the price target.
In other recent news, Diamondback Energy is under investigation by the U.S. Federal Trade Commission (FTC) for potential collusion with the Organization of the Petroleum Exporting Countries (OPEC). This follows a similar probe earlier in the year involving the former CEO of Pioneer Natural Resources (NYSE:PXD). Amid these developments, Diamondback Energy is also moving forward with its merger with Endeavor Energy Resources, having recently sold a 25% stake in WTG Midstream for $375 million.
Wells Fargo (NYSE:WFC) has maintained its Overweight rating on Diamondback Energy, raising the shares target from $224.00 to $231.00 due to efficiency gains and management's commitment to its 2024 plans. These improvements have led to reductions in rig and frac crew counts, bolstering Diamondback Energy's position as a cost leader in the Permian Basin. Wells Fargo's revised estimates for the second quarter of 2024 include $1,574 million in adjusted EBITDA, earnings per share of $4.60, free cash flow of $768 million, and capital expenditure of $617 million.
RBC Capital has also maintained its Outperform rating on Diamondback Energy, keeping a steady price target of $220.00. The firm projects the company's operational efficiencies will continue to boost production. Meanwhile, Scotiabank has reaffirmed its Sector Outperform rating on Diamondback Energy, maintaining a price target of $245.00. The firm expects the company's adjusted earnings per share to be $4.46, with cash flow per share forecasted at $7.75.
Lastly, Diamondback Energy's shareholders have approved executive pay and elected all nine nominated directors at the 2024 Annual Meeting, indicating confidence in the company's leadership. These recent developments highlight Diamondback Energy's commitment to maintaining operational efficiency and delivering on its financial guidance.
InvestingPro Insights
As Diamondback Energy (NASDAQ:FANG) navigates the financial landscape, recent data from InvestingPro underscores the company's market position and performance. With a market capitalization of $36.4B and a P/E ratio of 11.62, Diamondback Energy stands out in the sector. Its strong gross profit margin of 82.49% over the last twelve months as of Q1 2023 speaks to the company's efficiency in managing its operations.
InvestingPro Tips suggest that while analysts have revised their earnings expectations downwards for the upcoming period, Diamondback Energy has a history of maintaining dividend payments, doing so for 7 consecutive years, and sports a dividend yield of 4.57%. Additionally, the stock has seen a large price uptick over the last six months, with a 38.88% total return, indicating robust investor confidence. For those looking to delve deeper into Diamondback Energy's financials and future outlook, InvestingPro offers a suite of additional tips. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription and gain access to 11 more InvestingPro Tips to inform your investment strategy.
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