KLR Group Raises Price Target on Diamondback Energy (FANG) to $136; Reiterates Buy
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KLR Group Buy Diamondback Energy (NASDAQ: FANG) price target of $139.00 (from $126.00) after adjusting estimates. FANG announced 3Q volumes of ~44.9 MBoepd, ~16% higher than ~38.6 MBoepd estimates. There is no change to KLR's 2H16 completion tempo expectation of ~50 wells. However, due to strong well performance KLR did increase 2016 volume outlook by ~8% to ~42.3 MBoepd.
Analyst Gail Nicholson commented, "Following our model adjustments, FANG generates a mid-cycle ('18+) capital yield of 205%+, up from 195%+ previously and significantly higher than the group median of ~125%. FANG is one of our favorite mid-cap names in the E&P sector, offering exposure to the Midland and Delaware Basins with the ability to grow into a large-cap company driven by further acreage delineation and acceleration of its drilling tempo (applying a large cap equity discount rate to our model could add an incremental $16 to our target price). While the company does trade at an elevated EV/EBITDA vs. other oil-dominant names ('17 EV/EBITDA of ~12x vs. ~8.6x) in our coverage universe, we believe the higher multiple is warranted due to the company's superior capital yield, growth (CAGR '16-'18 of ~27% vs. the oil-dominant median of ~10%), and stellar balance sheet ('16 net-debt-to-EBITDA of ~1.1x vs. the oil-dominant median of ~3.3x)."
Shares of Diamondback Energy closed at $105.21 yesterday.
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