Tuesday, BofA Securities initiated coverage on Viper Energy (NASDAQ: NASDAQ:VNOM) shares, assigning a Buy rating and a price target of $64.00. The firm's analysis suggests a 22% total return potential for VNOM shares. Viper Energy, an oil and gas royalty company, has its operations primarily in the Permian Basin.
The company is distinct in its sector due to the backing it receives from Diamondback (NASDAQ:FANG) Energy, which holds a 43% stake in VNOM. Diamondback Energy is recognized as the largest publicly-traded oil producer in the Midland Basin, trading under the ticker FANG. This partnership is significant for Viper Energy, as more than half of its mineral rights are tied to leases operated by Diamondback.
The support from Diamondback Energy is anticipated to yield more than a decade of low single-digit oil production growth for Viper Energy. This aspect of VNOM's operations sets it apart from its competitors, who currently do not show growth and possess no more than one year of production visibility.
The firm's positive stance on Viper Energy is rooted in the company's unique position within the oil and gas industry, bolstered by a strong financial sponsor and the potential for sustained production growth. The $64.00 price target reflects the analyst's confidence in the company's future performance and market position.
In other recent news, Viper Energy Partners has reported consistent organic production growth and the successful completion of the Tumbleweed acquisition. The firm's CEO, Travis Stice, highlighted the company's disciplined strategy of consolidating high-quality mineral and royalty assets. This approach was further strengthened by the recent merger between Diamondback and Endeavor, which is expected to enhance Viper's operations.
The company has seen a significant increase in work-in-progress wells, particularly in Diamondback-operated areas, setting the stage for future growth. Viper's shareholder return policy remains focused on distributing approximately 75% of available cash, a strategy supported by a business model with no capital or operating costs.
Regarding the company's leverage strategy, Stice mentioned aiming for manageable levels while maintaining a robust competitive position in the mid-cap E&P sector. The Endeavor transaction, the largest to date for Viper, is expected to quickly reduce debt post-completion, with prospects for additional acquisitions in late 2025. These are the recent developments in the company's strategy and operations.
InvestingPro Insights
Recent data from InvestingPro adds depth to BofA Securities' bullish outlook on Viper Energy (NASDAQ: VNOM). The company's market capitalization stands at $5.58 billion, reflecting its significant presence in the oil and gas royalty sector. Viper Energy's financial health appears robust, with InvestingPro data showing liquid assets exceeding short-term obligations and the company operating with a moderate level of debt.
Aligning with BofA's positive view, InvestingPro Tips highlight that Viper Energy has been profitable over the last twelve months and analysts predict continued profitability this year. The company's strong performance is further evidenced by its high return over the last year, with a remarkable 85% price total return over the past 12 months.
However, investors should note that VNOM is trading near its 52-week high and at a high P/E ratio relative to near-term earnings growth. The current P/E ratio stands at 23.36, which may suggest the stock is priced at a premium. This valuation should be considered in light of the company's growth prospects and unique market position as outlined in the BofA analysis.
For those seeking a deeper understanding of Viper Energy's financial landscape, InvestingPro offers 10 additional tips, providing a comprehensive view of the company's potential and risks. To explore these insights and make more informed investment decisions, consider checking out the full range of tips available on InvestingPro.
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