Energy Business

Analysts Chased Diamondback Energy Targets Higher

Sometimes price target hikes just are not enough to keep a rally going after a big news-pop. That may even be the case in the oil and gas sector these days, particularly for the companies which have seen their shares nearly double off of their recent lows. Diamondback Energy Inc. (NASDAQ: FANG) saw numerous price targets raised by analysts after their guidance created a big share price gain on Monday. Unfortunately, its shares were trading lower on Tuesday.

Diamondback issued its guidance on Monday. The company showed that its average daily production during the third quarter of 2016 was 44,923 boe/d, which was 73% oil. This was said to be up 22% from the second quarter of 2016.

More importantly, Diamondback increased its 2016 production guidance to a range of 41.0 to 42.0 Mboe/d. This is up 6% from the midpoint of the July guidance range of 38.0 to 40.0 Mboe/d. Diamondback cited continued strong well performance for the increase. The company expects to complete 65 to 70 gross horizontal wells this year.

For 2017, the company’s preliminary guidance is 52 to 58 Mboe/d. This would be (at the mid-point) up over 30% from the mid-point of its updated 2016 production guidance. Diamondback further said that it plans to complete 90 to 120 gross wells in 2017.

So, the big question is whether this guidance was really all that much higher. Monday’s gain was to $105.21 from a closing price of $94.70 on Friday. Again, Tuesday’s post-news analyst coverage did not create any extra buying volume.

Price target hikes were seen by the likes of Canaccord Genuity, UBS, KLR, Raymond James, Nomura and more. These were seen as follows:

  • Barclays raised its target price to $108 from $88.
  • Canaccord Genuity raised its target price to $116 from $103.
  • KLR Group raised its price target to $139 from $126.
  • Nomura raised its price target to $110 from $98.
  • Northland Capital raised its target price to $114 from $102.
  • Raymond James raised its price target to $117 from $104.
  • UBS raised its target price to $106 from $98.
  • Wunderlich raised its price target to $130 from $110.

Canaccord Genuity’s note said about Diamondback:

To put the company’s 2017 preliminary guidance in perspective, the new range was not only above previous consensus (48.6 MBoe/d), but nearly surpassed our prior number also which had been one of the highest on the Street (52.3 MBoe/d). The impressive guidance illustrates why Diamondback should continue to be one of the top performers in the Permian. Such growth is made possible by a depth of quality inventory in both the Midland and Delaware Basins, top-tier corporate-level capital efficiency and a sterling balance sheet, all of which help underpin our Buy thesis.

Tuesday’s mid-afternoon reaction was down 25-cents at $104.96. it briefly hit a new 52-week of $106.84 before selling off.

Here is what Travis Stice, Diamondback’s chief executive officer, said for the higher guidance:

Diamondback’s continued strong well performance and increased completion cadence during the third quarter reflects our ability to turn our growth engine back on into a rising commodity price after reducing completion activity in early 2016. We are now operating four rigs with a fifth rig to be added in the coming weeks and a sixth rig to be added early next year.

We have increased 2016 production guidance and introduced 2017 production guidance which shows production growth of more than 30% at the midpoint compared to updated 2016 expectations. Our existing asset base allows us to drive production growth within cash flow into 2017 and beyond at the current forward strip prices.  The ability to drive multi-year organic growth, within cash flow on our existing asset base represents the standard we have always sought to achieve. We believe we are ideally positioned to pursue additional transactions provided they drive exceptional shareholder value while maintaining our disciplined approach to acquisitions.  As has been rumored, we were engaged in discussions involving an acquisition but are not actively pursuing further negotiations at this time.