On Wednesday, Barclays (LON:BARC) initiated coverage of Viper Energy (NASDAQ:VNOM), a subsidiary of Diamondback Energy (NASDAQ:FANG), with an Overweight rating and a price target of $44.00. The firm highlighted Viper Energy's advantageous position in the unconventional royalty sector, emphasizing its close relationship with Diamondback Energy, which provides clear insights into operational activities.
Viper Energy's prospects are bolstered by its location in the core of the Permian Basin, which is known for its rich mineral resources. This positioning is expected to drive organic growth. Additionally, the company's commitment to distribute 75% of discretionary cash flow offers investors a clear picture of potential shareholder returns.
The proposed merger between Diamondback Energy and Endeavor is seen as a positive development for Viper Energy, particularly in terms of activity visibility. Moreover, a potential drop down of Endeavor's mineral position to Viper Energy could significantly enhance the latter's size and scale. Barclays views Viper Energy as an attractive investment option for those seeking energy exposure without the associated operational and emission risks, citing the company's lack of capital expenditure and operating expense burdens.
Financial projections by Barclays estimate that Viper Energy could deliver cash return yields of 6.6% in 2024 and 7.3% in 2025, figures that are competitive with the yields from diversified and oil-weighted exploration and production companies. Looking beyond 2025, Viper Energy is expected to offer higher payout yields compared to its peers, supported by a stronger path to catalysts and visibility of activities.
The $44.00 price target set by Barclays is based on a projected distribution yield of 6.25% in 2025, assuming a West Texas Intermediate (WTI) crude oil price of $75 per barrel.
InvestingPro Insights
In light of Barclays' optimistic assessment of Viper Energy, real-time data from InvestingPro further illuminates the company's financial landscape. With a market capitalization of $7.1 billion and a P/E ratio that stands at 14.87, Viper Energy is trading at a low price-to-earnings ratio relative to its near-term earnings growth. This aligns with the InvestingPro Tips that highlight the stock's low price volatility and the fact that its liquid assets exceed short-term obligations, providing a stable financial footing.
The company's revenue for the last twelve months as of Q1 2023 was $790.81 million, with a slight quarterly revenue growth of 0.22%. Despite a moderate decrease in revenue growth of -3.9% over the last twelve months, Viper Energy's operating income margin remained strong at 75.17%. This robust profitability is reflected in the InvestingPro Tips, which note that analysts predict the company will be profitable this year and that it has been profitable over the last twelve months. The company's stock is also trading near its 52-week high, showcasing a significant price uptick over the last six months.
For those interested in deeper analysis and more tips, InvestingPro offers additional insights on Viper Energy. With a total of 11 InvestingPro Tips available, including the company's moderate level of debt and strong returns over the last three months, investors can gain a comprehensive understanding of VNOM's financial health and potential investment value. To access these insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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