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Diamondback Energy Inc FANG Stock Quote

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Diamondback Significantly Outperforms in Q3, but Recent Rally Makes Shares Look Pricey

Analyst Note

| Dave Meats, CFA |

We're lowering our fair value estimate for Diamondback to $116 per share from $125, after the firm reported its third-quarter results. But the firm actually turned in a very impressive report card for the period, and the decrease was mainly driven by the softening outlook for near-term crude prices since our last update on October 2021. Shares have had a terrific run recently, surging 35% in the last three months, and look rich at the current level. We believe market optimism about long-term oil prices explains the premium. The marginal cost of production for crude is still around $55/bbl for WTI, supporting our midcycle forecast. In contrast, the market price for Diamondback appears to be discounting a long-term average of about $65, which we think is too high. Essentially, this assumes global supply will keep lagging demand indefinitely, despite slowing demand growth now that the COVID-19 recovery is underway (other than in some zero-COVID-19 Asian countries, most notably China).

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Company Profile FANG

Business Description

Diamondback Energy is an independent oil and gas producer in the United States. The company operates exclusively in the Permian Basin. At the end of 2021, the company reported net proven reserves of 1.8 billion barrels of oil equivalent. Net production averaged about 375,000 barrels per day in 2021, at a ratio of 60% oil, 20% natural gas liquids, and 20% natural gas.

500 West Texas Avenue, Suite 1200
Midland, TX, 79701
T +1 432 221-7400
Sector Energy
Industry Oil & Gas E&P
Most Recent Earnings Sep 30, 2022
Fiscal Year End Dec 31, 2022
Employees 870

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