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On Monday, Truist Securities adjusted its outlook on Diversified Energy Co. (NYSE:DEC) shares, raising the price target from $19.00 to $21.00. The firm maintained its Buy rating on the stock. This adjustment comes following the company's third-quarter performance, which was described as standard.
Diversified Energy Co. recently expanded its financial disclosures, now including details about its Coal Mine Methane (CMM) capture activities. These activities are significant as they contribute to the company's Free Cash Flow (FCF) through the sale of environmental credits. The analyst from Truist Securities noted the potential value addition from these activities, suggesting that the environmental credit sales could significantly enhance the company's FCF.
The analysis provided by Truist Securities indicated that the incremental FCF from the company's environmental credit sales could add more than $4.00 per share to Diversified Energy's base business value. This assessment is based on the valuation of CNX, a peer company which holds a Hold rating.
Despite the expanded disclosures and the potential for increased FCF, Diversified Energy's stock has only experienced a $1.50 per share increase since the announcement. According to Truist Securities, this indicates that there could be a substantial margin for upside in the stock's value in the near term. The firm's revised price target reflects this optimism about the potential growth in Diversified Energy's stock price.
In other recent news, Diversified Energy Company announced its third-quarter financial results and a dividend declaration, signaling a positive financial health. The company has also been expanding its operations, with a $69 million acquisition of natural gas properties in East Texas, expected to contribute an estimated Next (LON:NXT) Twelve Months (NTM) EBITDA of approximately $19 million.
Moreover, Diversified Energy completed a $106 million acquisition of natural gas properties from Crescent Pass Energy, anticipated to add 38 million cubic feet equivalent per day of production.
KeyBanc Capital Markets initiated coverage on the company's shares, assigning an Overweight rating and setting a price target of $18.00. Truist Securities also raised its price target for the company to $20, maintaining a Buy rating, based on updated financial forecasts for the years 2024 through 2026, particularly an estimated 2025 EBITDAX of $420 million.
Lastly, Diversified Energy is set to join the Russell 2000 Index, a development expected to increase its visibility in the U.S. investment community. These are the recent developments concerning Diversified Energy Company as it continues to make strides in its sector.
InvestingPro Insights
Diversified Energy Co.'s recent financial performance and market position are further illuminated by data from InvestingPro. The company's P/E ratio of 4.82 suggests that it may be undervalued relative to its earnings, aligning with Truist Securities' optimistic outlook. This is complemented by a dividend yield of 5.66%, which supports the InvestingPro Tip that the company "pays a significant dividend to shareholders."
The company's recent market performance has been notably strong, with a 25.22% price total return over the past month and an 11.59% return in just the last week. This recent momentum is reflected in the InvestingPro Tip indicating a "significant return over the last week" and "strong return over the last month."
However, investors should note that revenue growth has been negative, with a -50.1% decline in the last twelve months as of Q2 2024. This could explain why the stock is trading at 76.78% of its 52-week high, despite recent gains.
For those seeking a deeper analysis, InvestingPro offers 10 additional tips for Diversified Energy Co., providing a more comprehensive view of the company's financial health and market position.
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