Diamondback Energy Sets Share Offering Price Tag - Analyst Blog

Midland, TX-based Diamondback Energy Inc. FANG has priced a public offering of 2,000,000 common shares – 1,000,000 each being sold by two stockholders – at $90.04 a piece, with an over-allotment option for an additional 300,000 shares. The offering, announced Jun 23, is expected to close on Jun 27.

The energy explorer will not get the net proceeds from this offering, which will go to the sellers – Wexford Capital L.P. and Gulfport Energy Corp. GPOR – Diamondback's top two shareholders.

Diamondback, which went public in October 2012, is an independent exploration and production company engaged in the acquisition, finding and development of unconventional onshore oil and gas properties. The company's operations are concentrated primarily in the Permian Basin of West Texas.

Having done a stellar job at raising production and reserves from its assets, analysts are predicting strong earnings growth for Diamondback over the next couple of years. The 2014 Zacks Consensus Estimate is $2.85, representing 128% earnings per share growth over 2013. Next year's average forecast is $3.91, corresponding with 37% growth.    

However, shares of Diamondback – currently trading at $90.56 – have already climbed more than 75% since the beginning of the year. Therefore, any upside from here may be limited.

As a result, Diamondback currently retains a Zacks Rank #3 (Hold), implying that it is expected perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at Encana Corp. ECA and Ultra Petroleum Corp. UPL as good buying opportunities. These domestic upstream energy operators – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.