Texas Capital starts Kimbell Royalty stock with Buy rating, $24 target

On Monday, Texas Capital Securities initiated coverage on Kimbell Royalty Partners LP (NYSE:KRP) shares with a Buy rating and set a price target of $24.00, representing a significant upside from the current price of $15.78. According to InvestingPro data, analysts maintain a strong bullish consensus on the stock, which appears to be trading below its Fair Value. The new outlook highlights Kimbell’s strategic positioning within the unconventional play sector and the strength of its management in building a diversified minerals portfolio.

According to Texas Capital Securities, Kimbell Royalty has successfully amassed a high-quality portfolio that spans the core areas of each major unconventional play in the United States. This portfolio is characterized by its low base decline rates and wide geographical spread across 28 states, encompassing all significant U.S. onshore basins. The company’s operational excellence is reflected in its impressive 93.2% gross profit margin and an "GREAT" overall financial health score from InvestingPro.

The analyst noted the exceptional acreage quality of Kimbell’s holdings, pointing out that over the previous four quarters, at least 16% of all U.S. onshore rigs were operating on Kimbell’s land. This level of activity underscores the company’s robust position in the market.

Moreover, Texas Capital Securities emphasized the importance of Kimbell’s industry-leading proved developed producing (PDP) decline rate, which stands at 14%. This low decline rate is seen as a protective measure, insulating Kimbell from potential slowdowns in industry activity. It also means that operators will require less development effort to maintain the company’s existing production base, which is a significant advantage for the company.

The initiation of coverage and the setting of a $24.00 price target reflect Texas Capital Securities’ positive view on Kimbell Royalty Partners LP’s prospects in the oil and gas sector. The firm’s analysis suggests confidence in the company’s ability to maintain a strong production base and withstand industry fluctuations. Currently trading near its 52-week low, the stock offers a substantial 10.39% dividend yield. InvestingPro subscribers can access 13 additional investment tips and a comprehensive analysis of KRP’s valuation metrics in the Pro Research Report, available exclusively on the platform.

In other recent news, Kimbell Royalty Partners has completed a significant acquisition of mineral and royalty interests under the Mabee Ranch in the Midland Basin, Texas, for approximately $230.4 million in cash. This acquisition was finalized on January 17, 2025, and was made from Boren Minerals, with financing through borrowings under Kimbell’s revolving credit facility and proceeds from a public offering of common units. Additionally, Kimbell Royalty Partners announced another acquisition of mineral and royalty interests from a private seller for approximately $231 million, which is expected to close in the first quarter of 2025. This transaction includes interests spanning over 68,000 gross acres and is expected to enhance Kimbell’s daily production by roughly 8%. The acquired assets are currently producing about 1,842 barrels of oil equivalent per day and are projected to be immediately accretive to Kimbell’s distributable cash flow per unit. CEO Bob Ravnaas emphasized the strategic nature of these acquisitions, highlighting the excellent reservoir quality and long-term production growth potential. These moves are expected to bolster Kimbell’s position in the Permian Basin, which remains a leading production area for the company.

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