Global Energy Demand Will Support Robust Natural Gas Markets

Key Takeaways

• Early outperformance in portfolio optimization and operational savings, plus strong acquisition backing, position the company for sustained above-forecast margin and cash flow growth.
  
• Expansion into environmental services and capitalizing on low-decline gas assets provide durable revenue streams and resilience amid tightening regulatory standards.
  
• Heavy dependence on aging well acquisitions, rising environmental costs, shrinking gas demand, high debt, and ESG pressures threaten margins, funding access, and long-term viability.

Catalysts

Operates as an independent owner and operator of producing natural gas and oil wells primarily in the Appalachian Basin of the United States.

• While analyst consensus sees significant value from Maverick Natural Resources integration and $60 million in annual synergies, execution to date suggests this figure could be substantially exceeded, as early operational savings and portfolio optimization already outpace expectations-providing the potential for meaningfully higher net margin expansion and EBITDA growth than forecast.
  
• Analysts broadly see the Carlyle partnership as enabling accretive acquisitions, but with up to $2 billion of non-dilutive funding now in place and a clear surplus of distressed or mature asset divestments in the US, Diversified can accelerate its acquisition roll-up at previously unmatched scale, turbocharging revenue and cash flow growth for several years.
  
• The company's dominant position in mature, low-decline gas assets leaves it ideally placed to capitalize on surging US natural gas demand from LNG export growth and AI-driven data center expansions, implying a multi-year tailwind for both realized prices and volumes that could drive step-changes in top-line revenue.
  
• Diversified's proven ability to unlock high-return, capital-light growth from non-operated JVs and monetization of overlooked acreage-including premium land sale prices and identified future Permian JV potential-suggests untapped sources of cash flow and production resilience that will directly support earnings and lower corporate decline rates.
  
• The rapid scaling of third-party asset retirement and environmental solutions not only strengthens Diversified's ESG profile but opens a vast market as regulatory and environmental standards tighten, creating a high-margin service business that can materially boost group-level profitability and unlock new, durable revenue streams.

Diversified Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Diversified Energy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Diversified Energy's revenue will grow by 15.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -12.0% today to 14.8% in 3 years time.
• The bullish analysts expect earnings to reach $263.1 million (and earnings per share of $4.55) by about August 2028, up from $-137.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 19.4x on those 2028 earnings, up from -8.6x today. This future PE is greater than the current PE for the GB Oil and Gas industry at 11.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.21%, as per the Simply Wall St company report.

Diversified Energy Future Earnings Per Share Growth

Risks

• The company's heavy reliance on acquiring mature, late-life wells exposes it to growing environmental and regulatory risks, as increasing requirements to plug and abandon aging wells will drive up operating expenses and suppress future net margins.
  
• Accelerating global commitments to net-zero emissions and the widespread adoption of renewables threaten long-term demand for natural gas, putting sustained downward pressure on Diversified Energy's revenue potential as its core market contracts.
  
• Persistently high levels of debt, with net debt at approximately $2.6 billion and continued reliance on borrowing to fund asset acquisitions, heighten the impact of interest rate hikes and refinancing risks, which could erode future earnings and limit the company's financial flexibility.
  
• The depletion of acquired mature assets and a stated corporate production decline rate of around 10% annually create the risk of falling production volumes and revenue unless new profitable acquisitions or organically productive assets are secured consistently.
  
• Heightened public and investor scrutiny around fossil fuel emissions, coupled with increased ESG compliance costs and growing divestment from oil and gas by insurers and capital markets, is likely to inflate Diversified Energy's cost of capital and reduce access to funding, negatively impacting both margins and the ability to invest for growth.

Valuation

• The assumed bullish price target for Diversified Energy is £29.81, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Diversified Energy's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £29.81, and the most bearish reporting a price target of just £11.06.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $263.1 million, and it would be trading on a PE ratio of 19.4x, assuming you use a discount rate of 10.2%.
• Given the current share price of £11.33, the bullish analyst price target of £29.81 is 62.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.