Is this U.S.-China selloff a buy? A top Wall Street voice weighs in
On Tuesday, Raymond (NSE:RYMD) James maintained its Outperform rating on Viper Energy (NASDAQ:VNOM) but reduced the stock’s price target from $64.00 to $58.00. The adjustment follows Viper Energy’s recent announcement of an equity raise and asset purchases. The firm cited a lower commodity price strip and a larger equity component than previously modeled as the reasons for the price target reduction. Currently trading at $47.85, the stock has demonstrated impressive momentum with a 62% return over the past year. According to InvestingPro analysis, the company’s shares currently appear overvalued relative to their Fair Value estimate.
Last week, Viper Energy revealed a significant equity raise, generating approximately $1.1 billion through the sale of 24.64 million shares. The capital raised is intended for the acquisition of the Endeavor dropdown from Diamondback Energy (NASDAQ:FANG). In this transaction, Diamondback Energy will receive $1 billion in cash and 69.6 million units, along with an equal number of Class B shares. With a market capitalization of $6.11 billion and maintaining a moderate debt-to-equity ratio of 0.59, InvestingPro data shows the company operates with a sustainable financial structure.
In addition to the Endeavor dropdown, Viper Energy has agreed to purchase assets from Morita Ranches for $211 million and 2.4 million units. The Endeavor dropdown is slated to be finalized in the second quarter, while the Morita Ranches asset acquisition is expected to close within the current quarter.
Raymond James highlighted the significance of the dropdown transaction, labeling it the largest ever in the minerals industry. The firm emphasized that this move would provide Viper Energy with a considerable scale advantage in the future. Despite the reduction in the price target, Raymond James reiterated its positive outlook on Viper Energy’s stock with the Outperform rating.
In other recent news, Viper Energy has reported robust Q4 results, with a total operating income of $228.7 million. The company has announced plans to acquire equity interests of certain Diamondback subsidiaries in a transaction valued at $1.0 billion, expected to close in the second quarter of 2025. Viper Energy will also acquire mineral and royalty interests from Morita Ranches Minerals LLC for approximately $211 million, a move anticipated to significantly enhance Viper’s footprint in the Midland, Delaware, and Williston Basins.
Analysts at Texas Capital Securities have revised Viper Energy’s stock target to $48, while maintaining a Buy rating. Other firms, including Truist Securities, Evercore ISI, and KeyBanc, have increased their stock price targets for Viper Energy, based on the company’s potential to enhance its mineral interests through its strategic relationship with parent company Diamondback Energy.
Additionally, Viper Energy’s acquisition of Tumbleweed and Diamondback’s acquisition of Endeavor are expected to contribute to increased production in 2025. These developments, along with the anticipated asset drop from Diamondback, position Viper Energy for higher than average production growth and enhanced market presence. These are the recent developments in Viper Energy’s and Diamondback Energy’s strategies and operations.
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