On Tuesday, Viper Energy (NASDAQ:VNOM) received an optimistic update from Roth/MKM, with the firm raising the stock's price target to $43 from $41, while reiterating a Buy rating. The increase is attributed to Viper Energy's status as a top-performing pure-play Permian minerals company, noted for its high organic growth rate compared to its peers, a robust dividend, and a clear multi-year operational perspective that its competitors lack.
The firm anticipates a robust second quarter for Viper Energy, projecting oil production to slightly exceed market expectations. The estimated oil output stands at 26,565 barrels of oil per day (Bopd), approximately 1% above the consensus of 26,270 Bopd and just above the upper limit of the company's own guidance range of 26,000-26,500 Bopd.
Furthermore, total production for the second quarter is expected to surpass consensus estimates by 3.5%, reaching 48,785 barrels of oil equivalent per day (Boepd). This figure is also 3.2% above the high end of Viper Energy's previous guidance, which forecasted 46,500-47,250 Boepd.
The report also highlights the performance of Diamondback Energy (NASDAQ:FANG), which operates over half of Viper Energy's production volumes. Diamondback Energy's solid quarter is expected to have positively influenced Viper's output.
Moreover, due to weaker Permian gas prices during the second quarter, the report suggests that producers likely extracted more ethane, contributing to a significant volume beat driven by natural gas liquids (NGLs).
Lastly, the firm predicts strong oil price realizations for Viper Energy in the second quarter, estimating them to be just over 99% of the West Texas Intermediate (WTI) benchmark, as Diamondback Energy's pre-reported prices are typically a benchmark, and Viper's prices tend to be nearly $1 per barrel better than Diamondback's.
In other recent news, Diamondback Energy posted an adjusted earnings per share (EPS) projection of $4.46 and a cash flow per share (CFPS) forecast of $7.75. Despite a pre-tax loss of $28 million from derivatives in the second quarter of 2024, the company's oil and gas sales remain robust. Scotiabank continues to maintain a positive outlook on the company, reaffirming its Sector Outperform rating with a price target of $245.00.
In corporate updates, Diamondback Energy's shareholders approved executive pay and elected all nine nominated directors at the 2024 Annual Meeting. The company has also been active in mergers and acquisitions, including a transaction with Endeavor Energy Resources and the sale of a 25% stake in WTG Midstream for $375 million, aimed primarily at debt reduction.
Analysts from Bernstein and RBC Capital Markets have provided positive ratings and increased price targets for Diamondback Energy. The company's growth potential is reflected in analysts' projections for its EBITDA and CFO, with a Compound Annual Growth Rate (CAGR) of 37.4% and 29.4% respectively, from fiscal year 2023 to 2025. The free cash flow is expected to see a larger increase, with a CAGR of 45.6% over the same period.
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