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Sterne Agee CRT Reiterates Diamondback Energy As Top Pick For '16

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  • Diamondback Energy Inc (NASDAQ: FANG) shares are down 13 percent in the last six months, and have been trading below $70 since December 18.
  • Sterne Agee CRT’s Tim Rezvan maintained a Buy rating for the company, with a price target of $84
  • The SOTP valuation indicates that the E&P segment is not overvalued, and that full-cycle costs would decline, Rezvan stated.

“We spent the last week fine-tuning the "Diamondback ex-mineral rights" model we maintain in tandem with our model,” analyst Tim Rezvan mentioned. He assessed the value of the company's E&P assets on a stand-alone basis, excluding the 88 percent ownership of LP units in Viper Energy Partners LP (NASDAQ: VNOM) [Rated: Neutral].

Rezvan believes that investors should focus on valuations for the E&P segment alone, since it trades “nearly a turn cheaper” than the combined company. While Diamondback's stock trades at a premium, this is warranted, with the full-cycle costs of $37/boe expected to fall below $33/boe in 2016. Moreover, the company’s shares trade “less than two turns above the group average.”

“Diamondback management has opportunistically leveraged its rich valuation to issue equity for bolt-on acquisitions since its 2012 IPO,” Rezvan pointed out. He added that the gap in multiples enjoyed by Diamondback’s stock relative to Midland Basin peers increases the possibility of the company using equity on a larger scale, like making a corporate acquisition.

The analyst added that the most probable acquisition targets are Callon Petroleum Company (NYSE: CPE) [Rated: Buy] and RSP Permian Inc (NYSE: RSPP), based on geographical overlap.

Latest Ratings for FANG

DateFirmActionFromTo
Nov 2019MaintainsOverweight
Nov 2019MaintainsOutperform
Nov 2019MaintainsStrong Buy

View More Analyst Ratings for FANG
View the Latest Analyst Ratings

Posted-In: Sterne Agee CRT Tim RezvanAnalyst Color Long Ideas Reiteration Analyst Ratings Trading Ideas

 

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