Texas Capital Securities downgrades Sitio Royalties stock rating

On Monday, analysts at Texas Capital Securities downgraded Sitio Royalties Corp. (NYSE: NYSE:STR) stock rating to Hold from Buy. This decision follows the announcement of a definitive agreement for Sitio Royalties to be acquired by Viper Energy (NASDAQ:VNOM), Inc. in an all-equity transaction. The deal values Sitio Royalties at $19.41 per share, with the stock currently trading at $19.95. According to InvestingPro, the stock has seen an impressive 15.18% return over the past week following the announcement.

The transaction, announced on June 3, 2025, positions Viper Energy to acquire Sitio Royalties for $4.1 billion. Texas Capital Securities analysts expressed a positive view of the acquisition, highlighting the strategic fit and potential benefits of the merger. They noted that the combination is expected to create a significant player in the minerals sector, characterized by substantial scale and low leverage. Sitio brings impressive fundamentals to the deal, with InvestingPro data showing industry-leading gross profit margins of 92.56% and a strong financial health score.

Following the announcement, Texas Capital Securities adjusted their price target for Sitio Royalties stock to $20.00, down from the previous target of $29.00. The analysts do not anticipate any competing bids for Sitio Royalties, citing the strategic alignment and the absence of well-capitalized public competitors in the sector. Based on InvestingPro’s Fair Value analysis, the stock appears fairly valued at current levels, with 12 additional ProTips available to subscribers.

The acquisition is seen as a strategic move to enhance the combined entity’s market position, offering a base dividend breakeven below $20 per barrel WTI. Texas Capital Securities analysts maintain a positive outlook on the transaction, despite the downgrade in the stock rating and the reduction in the price target.

Sitio Royalties’ stock has been impacted by the acquisition news, as investors adjust their positions in light of the new valuation and strategic direction outlined by the merger with Viper Energy.

In other recent news, Sitio Royalties Corp reported its Q1 2025 earnings, meeting analyst expectations with earnings per share of $0.13 and surpassing revenue forecasts by generating $163.52 million. The company highlighted a record production quarter and strong financial performance, with net income growing 36% year-over-year. Additionally, Sitio Royalties announced the reaffirmation of its borrowing base at $925 million through a credit agreement amendment. This financial maneuver is part of the company’s ongoing financial management strategy, providing transparency to investors.

Sitio Royalties also announced that it will be acquired by Viper Energy, a subsidiary of Diamondback (NASDAQ:FANG) Energy, Inc., in an all-equity transaction valued at approximately $4.1 billion. The acquisition, which includes Sitio’s net debt, is expected to close in the third quarter of 2025 and aims to create a leading entity in the North American mineral and royalty space. Viper’s board has approved a 10% increase to its base dividend, indicating confidence in the transaction’s potential to drive shareholder value. The merger is anticipated to be accretive to cash available for distribution per Class A share immediately upon closing.

Furthermore, financial advisors for the transaction include Moelis (NYSE:MC) & Company LLC for Viper and J.P. Morgan Securities LLC for Sitio, with legal advisors being Wachtell, Lipton, Rosen & Katz, and Vinson & Elkins LLP, respectively. This strategic move is expected to position the combined company for strong performance in the Permian Basin. These developments reflect Sitio Royalties’ continued focus on acquisitions and shareholder returns, as well as its strategic positioning in the market.

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