JPMorgan sees upside for Diamondback Energy stock as operational improvements drive outlook

On Friday, JPMorgan analysts increased the price target for Diamondback Energy (NASDAQ:FANG) stock to $195 from $191, while maintaining an Overweight rating. The adjustment follows a review of the company's operational efficiency gains and capital expenditure (capex) forecasts for 2025.

Diamondback Energy's acquisition of Endeavor in February 2024 set a preliminary 2025 production guide of 470-480 thousand barrels of oil equivalent per day (MBo/d), supported by a capex plan of $4.1 to $4.4 billion. Initially, the company planned to operate 21-24 rigs and manage more than five hydraulic fracturing crews to achieve its goals.

However, throughout 2024, Diamondback Energy has achieved significant efficiency improvements in the field. The company now expects to execute its 2025 program with 18 rigs and four HAL Zeus eFleets. In the Midland Basin, Diamondback's leading-edge well costs have decreased to $600 per foot, which is below the $625 per foot estimate used in the Endeavor merger's financial evaluation.

The acquisition of Tumbleweed by Viper Energy Partners LP (NASDAQ:VNOM) in September 2024, which is anticipated to contribute an additional 4.5 MBo/d to 2025 production, has prompted Diamondback to adjust its full-year 2025 production expectations to the upper end of its guidance range, around 480 MBo/d.

According to InvestingPro data, VNOM maintains a strong financial position with a current ratio of 7.24 and operates with moderate debt levels. The company's market capitalization stands at $5.25 billion, and it offers an attractive dividend yield of 4.83%. InvestingPro subscribers can access 8 additional key insights about VNOM's financial health and growth prospects through the platform's comprehensive analysis tools.

JPMorgan highlighted the strong productivity trends from Diamondback's 2024 turn-in-line wells, which could provide further capital efficiency benefits. The company might now be able to deliver its 2025 program at or below the lower end of the $4.1-$4.4 billion guidance range. Recent statements from Diamondback suggest a potential reduction in activity to maintain production levels consistent with the fourth quarter of around 475 MBo/d, while still achieving capital efficiency gains and increasing free cash flow (FCF).

For the fourth quarter, JPMorgan anticipates Diamondback to generate $1,194 million in FCF, with cash returns comprising a $0.90 per share quarterly dividend and $334 million in share buybacks. The firm's estimates for cash flow per share (CFPS), EBITDA, and oil production are all in line with consensus estimates, and their capex estimate of $991 million is slightly below the Street estimate of $1,000 million. Following updates to their model for recent strip pricing and Diamondback's pricing disclosures, JPMorgan reiterated their positive stance and raised their price target for December 2025.

VNOM has demonstrated impressive performance with a 75.69% return over the past year, and InvestingPro analysis reveals the company maintains a "GOOD" overall financial health score. Investors seeking detailed insights into VNOM's valuation metrics, financial health indicators, and growth prospects can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, Viper Energy has been the focus of several significant developments. The company reported sustained organic production growth and the successful completion of the Tumbleweed acquisition. In addition, the recent merger between Diamondback and Endeavor is expected to enhance Viper Energy's operations.

Analysts from Evercore ISI and KeyBanc have raised their price targets for Viper Energy to $58.00 and $62.00 respectively, maintaining an Outperform rating and upgrading from Sector Weight to Overweight. Goldman Sachs and BofA Securities have also initiated coverage on the company, assigning it a Buy rating with price targets of $70.00 and $64.00.

These recent analyst upgrades and coverage are based on expectations of Viper Energy's acquisition of over $4 billion in mineral interests from Diamondback in early 2025, and the company's impressive track record of converting approximately 80% of its adjusted EBITDA to free cash flow.

The company's unique business model, which requires no capital expenditure, is designed to offer investors a share in commodity exposure while simultaneously providing dividends. The company's shareholder return policy aims to distribute approximately 75% of available cash, supported by a business model with no capital or operating costs.

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