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Diamondback Energy (NASDAQ: $FANG)

Diamondback Energy, Inc

Diamondback Energy, Inc. (NASDAQ: $FANG) is an independent oil and gas company concentrating on the procurement, advancement, exploration, and exploitation of unconventional onshore oil and natural gas reserves within the Permian Basin located in West Texas.

The company’s operations fall under the upstream segment, involving the acquisition, development, exploration, and exploitation of unconventional onshore oil and natural gas reserves, predominantly in the Permian Basin.

Additionally, in the midstream sector, Diamondback Energy focuses on the ownership, operation, development, and acquisition of midstream infrastructure assets situated in the Midland and Delaware Basins of the Permian Basin.

With a total acreage of approximately 508,767 net acres in the Permian Basin, including around 325,540 acres in the Midland Basin and roughly 150,719 acres in the Delaware Basin, Diamondback Energy is positioned as a key player in the energy sector.

The company’s subsidiaries encompass Diamondback E&P LLC, Viper Energy Partners GP LLC, Rattler Midstream GP LLC, and QEP Resources, Inc.

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Diamondback (FANG) Q3 Earnings Beat Estimates on Higher Output

In the third quarter of 2023, U.S. energy operator Diamondback Energy (FANG) reported adjusted earnings per share of $5.49, surpassing the Zacks Consensus Estimate of $4.90.

This strong performance is attributed to robust production and reduced costs. However, the bottom line showed a decline from the adjusted figure of $6.48 in the corresponding year-ago period, primarily due to a significant decrease in overall realization.

Revenues amounted to $2.3 billion, marking a 4% decrease from the year-ago quarter but surpassing the Zacks Consensus Estimate by $163 million.

In positive news for investors, Diamondback Energy is using excess cash to reward shareholders through dividends and buybacks. The board of directors declared a quarterly cash dividend of 84 cents per share to common shareholders of record on November 16, with the payout scheduled for November 24. Additionally, a special dividend of $2.53 per share was declared.

During the third quarter of 2023, the company executed share repurchases totaling $56 million at an average price of $136.59 per share.

Diamondback Energy’s oil and natural gas production averaged 452,848 barrels of oil equivalent per day (BOE/d), with oil comprising 59%. This figure represents a 15.9% increase from the year-ago quarter, surpassing the estimated 442,803 BOE/d. Crude and natural gas output rose 18.6% and 7.9% year over year, respectively, while natural gas liquid volumes increased by 16.6%.

The average realized oil price for the quarter was $81.57 per barrel, a 9.2% decrease from the year-ago realization of $89.79 but higher than the projected $71.62. The average realized natural gas price declined to $1.62 per thousand cubic feet (Mcf) from $6.46 in the year-ago period, exceeding the estimate of $1.49. Overall, the company achieved $54.37 per barrel, compared to $67.25 a year ago.

Shareholders of Diamondback Energy Set to Receive Larger Dividend Compared to the Previous Year

Diamondback Energy, Inc.’s (NASDAQ: FANG) board has declared a dividend of $3.37, scheduled to be paid on November 24th, marking an augmentation from the corresponding dividend of the previous year. This translates to an annual payment equivalent to 5.2% of the current stock price, aligning with the industry average.

While the dividend yield is a significant metric, its sustainability is paramount. The last payment was adequately covered by earnings, yet it constituted 144% of cash flows. Although the company appears focused on returning cash to shareholders rather than expanding the business presently, a cash payout ratio of this magnitude could pose a risk of dividend reduction in the face of business challenges.

Looking ahead, the next year is expected to witness a growth in earnings per share (EPS) by 11.0%. If the dividend continues its recent trajectory, the estimated payout ratio would be 64%, falling within a range that instills confidence in the dividend’s sustainability.

Diamondback Energy has a history of dividend payments, albeit with some concerns about its consistency over a complete economic cycle. Since 2017, the dividend has increased from $0.50 annually to $8.07, representing a growth rate of 59% per year. Despite this rapid growth, there have been instances of a decrease in dividend payments in the past, prompting caution.

However, the company’s growing earnings per share (EPS) may help mitigate concerns about past fluctuations in dividends. With a consistent 22% annual increase in EPS over the last five years, Diamondback Energy demonstrates robust earnings growth. The company appears to strike a good balance between reinvesting in its operations and distributing dividends to shareholders, suggesting it could emerge as a reliable dividend payer.

What is the target price for FANG?

The 29 analysts providing 12-month price predictions for Diamondback Energy Inc have set a median target of 183.00, ranging from a high estimate of 235.00 to a low estimate of 147.00. This median estimate indicates an expected increase of +18.21% from the most recent price of 154.81.

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