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On Monday, Mizuho (NYSE:MFG) initiated coverage on Sitio Royalties Corp (NYSE:STR), currently trading at $20.20, with a Neutral rating and a price target of $22.00. The $3.06 billion market cap company offers investors an attractive 8.12% dividend yield. The firm highlighted Sitio Royalties’ quality portfolio of mineral and royalty interests, primarily located in the Permian Basin. This region is known for its activity by some of the largest and most well-capitalized U.S. exploration and production companies. According to InvestingPro, the company maintains impressive gross profit margins of 92.57%.
The research firm pointed out that Sitio Royalties’ strategy regarding mergers and acquisitions (M&A) will be pivotal in an industry where investors are looking for companies with significant size and scale. While Sitio Royalties has been engaging in relatively small deals, which demonstrates their selective approach and strong local presence, Mizuho suggested that the company may need to aim for larger acquisitions to achieve the necessary scale.
Sitio Royalties’ recent M&A activities have shown both potential benefits and challenges. The company’s ability to strike a balance between growing in size and maintaining value will be crucial, according to Mizuho. The firm’s assessment of Sitio Royalties’ relative valuation found it to be reasonable, noting that the company is trading at a discount compared to Viper Energy Partners LP (NASDAQ:VNOM) but at a slight premium over Kimbell Royalty Partners (NYSE:KRP).
The price target set by Mizuho reflects the firm’s view of the fair value for Sitio Royalties shares, considering the current market conditions and the company’s performance. Sitio Royalties’ focus on maintaining stringent criteria for its M&A ventures and its presence in a competitive market for larger acquisitions are key factors in Mizuho’s rating. The company’s future M&A strategy will be closely watched by investors as it seeks to navigate the balance between expansion and value creation.
In other recent news, Sitio Royalties Corp reported its financial results for the fourth quarter of 2024, revealing a mixed performance. The company posted earnings per share (EPS) of $0.09, which fell short of the anticipated $0.1217. However, revenue exceeded expectations, reaching $155.09 million against a forecast of $147.5 million. Additionally, Sitio Royalties achieved a 4% quarter-over-quarter increase in adjusted EBITDA, amounting to $141.2 million, and reported strong production levels averaging nearly 41,000 barrels of oil equivalent per day. The company returned $330 million to shareholders in 2024, highlighting its commitment to shareholder value.
In other developments, Sitio Royalties announced executive changes, with Dawn Smajstrla stepping down as Chief Accounting Officer. Carrie Osicka, the current Chief Financial Officer, will assume the additional role of principal accounting officer. The company plans to finalize a separation agreement with Smajstrla, aligning with its Amended & Restated Severance Plan. Furthermore, Sitio Royalties reported capturing $19 million in missing revenue payments through its proprietary technology.
The company’s forward guidance for 2025 includes a projected total production of approximately 40,000 barrels of oil equivalent per day, a 3% increase over 2024. Sitio Royalties also anticipates exceeding $1 billion in capital returns, supported by a robust acquisition pipeline. These recent developments reflect Sitio Royalties’ strategic focus on operational efficiency and shareholder returns.
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