Diamondback Energy (FANG) disclosed that it has accelerated its plans to return 50% of free cash flow to its shareholders in the fourth quarter of fiscal 2021. The company added that to support this commitment its board of directors has announced a share repurchase program of up to $2 billion
Following the news, shares of the oil and natural gas company gained 5.2% in extended trade on Thursday.
Diamondback’s accelerated capital return program is supported by strong operational performance on the back of a supportive macroeconomic backdrop and increasing financial strength. (See Diamondback stock chart on TipRanks)
The CEO of Diamondback, Travis Stice, said, “While our consistent and growing base dividend remains our primary means of returning capital, we plan to opportunistically repurchase shares of our common stock with the remaining Free Cash Flow allocated to our stockholders when we expect the return on that repurchase to be well in excess of our cost of capital at mid-cycle commodity prices, which is the case today.”
Repurchases will be made from funds generated from operations and liquidity events such as the sale of assets. Also, the program may be suspended from time to time, modified, extended or discontinued by the board of directors at any time.
On September 15, Truist Financial analyst Neal Dingmann maintained a Buy rating on Diamondback and raised the price target to $130 from $122. The new price target implies 62.4% upside potential from the current level.
Dingmann is optimistic about the company’s ability to generate material free cash flows with a yield of over 20% in FY22. Also, the analyst added that he models “quarterly free cash flows of over $500M going forward with a notable amount of proceeds used to continue to repay debt.”
The rest of the Street is bullish on the stock with a Strong Buy consensus rating based on 13 unanimous Buys. The average Diamondback price target of $115.38 implies upside potential of about 44.1% from current levels.
FANG scores a 9 out of 10 on TipRanks’ Smart Score rating system, suggesting that the stock is likely to outperform market averages.
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