Matador Resources (NYSE: MTDR) is a North American-based up and midstream energy company.
Matador is still considered a growth stock in itself and is a lucrative option for someone seeking capital gains prospects rather than a dividend-pure play, which is often the case with energy stocks. I am bullish on the stock.
Earnings
Matador Resources beat its fourth-quarter earnings estimates by posting a revenue beat worth $118.69 million, and an EPS beat of $0.18.
The company expanded on its success during the full financial year of 2021 with oil production growing by 12% for the year, and natural gas production by 18% during the same period.
One of the key drivers behind Matador’s recent success has been San Mateo Midstream, which is a joint venture operation that operates in the midstream part of the oil and natural gas supply chain, with offerings in gathering, processing, and transportation, among others. The segment grew tremendously during the past year with an EBITDA surge of 37%.
Matador’s access to a robust midstream operating facility will support vertically integrated processes, allowing it to be more nimble with its capital structure and operating costs during severe commodity price changes.
Expansion & Rising Demand
Matador is on an expansionary trajectory with operations expanding by $513 million in drilling, equipping, and completing with a particular focus on the Delaware region. Furthermore, Matador has expanded on its midstream operations with a capital spend of $37 million during the previous year.
From a demand vantage point, the Russian sanctions are a catalyst as much of the world will have to be buying its fossil fuels from alternative sources, one of which could be Matador.
From a local vantage point alone, the United States imports 8% of its oil and gas from Russia, and local buying will certainly be an option from here on in.
Matador has achieved an average five-year revenue growth of 46.1%, suggesting that this is an expanding company with the capacity to supply local and foreign needs that were previously reliant on Russia.
Market Perspective
Matador is one of the higher-risk oil and gas stocks in the market. The stock has a beta coefficient of 4.06 meaning that it is 4.06x as risky as the S&P 500, but could, in turn, achieve greater returns in a bull market.
I can’t foresee energy stocks doing badly in the near term as higher prices and seasonal demand will likely drive profitability higher.
Valuation
Matador’s P/E ratio of 12.6 is below its five-year average by 46.5%. This bodes well with the stock’s price-to-cash flow ratio of 6, which is well below the generally accepted value threshold of 15.
Additionally, the market seems to have noticed Matador’s value prospects as its currently trading above its 10-, 50-, 100-, and 200-day moving averages.
Wall Street’s Take
Turning to Wall Street, Matador has a Strong Buy consensus rating, based on seven Buys assigned in the past three months.
The average Matador price target of $60.43 implies 12.5% upside potential.
Concluding Thoughts
Matador Resources could be the optimal play as the world shifts away from Russian oil and gas.
It’s a risky stock in itself, but a looming cyclical upswing means that returns will likely be positively skewed.
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