Diamondback Energy’s (FANG) stock price has enjoyed a two-year uptrend with 800% gains. Within the last 12 months, the price has grown more than 100%.
There are two reasons for this virtuoso performance: the extended ongoing rally in WTI Crude and excellent financial performance from the company. I rate Diamondback Energy as very bullish and expect the current greater oil rally to continue.
WTI Crude Oil Rally
WTI Futures have gained for the fourth week straight. Between November and January, future prices have risen $20 per barrel, reaching $84 per barrel. During the pandemic, oil contracts had fallen below $20 per barrel. Since the recovery, the price has been on a steady gain, due to the demand from the reopening of global economies.
The price of crude has been tested during the time of pandemic and recovery, with oil reserves being increased globally. The Omicron variant also dropped the price and shook up investor sentiment.
The slow recovery of the global economy has seen an overall price uptrend for oil contracts and energy companies have benefited with steep stock price uptrends. Investors are wise to compare stock price and financial performance of different energy companies and to pick the best performers.
The current oil rally concerns geopolitical conflict between Russia and the Ukraine and the possibility of supply disruption, causing higher prices per barrel.
Another cause of the rally is investor sentiment and the realization that oil demand will increase as global economies further reopen post-Omicron. There is the current expectation that the crude rally will continue, although more volatility will accompany it.
Diamondback Energy’s Financial Performance
Diamondback Energy has operations in the Permian basin (Midland, Texas) and the Delaware basin, with a total of 413,000 acres. For Q3 2021, the company reported revenues of $1.9 billion, beating expectations by $405.38 million, and an EPS of $3.56.
The company produced 239.8 Mbo/d during Q3. It generated $740 million in free cash flow.
The company’s largest revenue stream comes from oil sales, which amounted to $1.5 billion for Q3 2021. Diamondback Energy also reports revenues from natural gas, natural gas liquid, and midstream services.
The company reported profit from revenues of $746 million and operates at a net income of $674 million. For Q4 2021 reports, the current market estimate for revenue is $1.67 billion and an EPS of $3.42.
The company has accumulated $1.65 billion in free cash flow within the first nine months of 2021. During Q3, it raised $586 million in proceeds from the sale of its Williston basin assets.
The company has committed to returning 50% of its free cash flow to shareholders through stock buyback programs and dividend payouts. The company raised its dividend to $2 per annum. The other 50% has been earmarked for debt reduction.
Wall Street’s Take
Turning to Wall Street, Diamondback Energy has a Strong Buy rating based on 18 Buys and one Hold assigned in the last three months. The average Diamondback Energy price target of $142.32 implies 10.7% upside potential.
Diamondback Energy has caught the eye of investors with its 800% gains in stock price over the last two years. The oil company has benefitted from post-pandemic recovery and higher demand for oil on a global level.
The company expects high revenues on oil sales to continue. The greater WTI Crude oil rally has continued based on geopolitical instability in Eastern Europe. Investors are wise to compare different oil companies and their financial and stock price performances.
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