Sitio Acquisition And Permian Exposure Will Shape Future Outlook

Key Takeaways

• Acquisition of Sitio Royalties and integration of automation is set to boost operational efficiency, scale, and support long-term revenue and margin growth.
  
• Focus on U.S. energy assets, strong partnerships, and aggressive cash returns to shareholders position Viper for per-share earnings growth and competitive shareholder returns.
  
• Heavy dependence on third-party operators, regional concentration, integration risks from acquisitions, market-dependent asset sales, and ESG pressures create multifaceted risks to growth and returns.

Catalysts

Owns and acquires mineral and royalty interests in oil and natural gas properties in the Permian Basin, North America.

• The expected accretive acquisition of Sitio Royalties is set to add substantial scale and inventory depth, supporting a decade-long production profile and leading to immediate and meaningful financial accretion, which should boost both revenue and earnings.
  
• Viper's exposure to sustained U.S. domestic energy development in the Permian Basin-backed by its strong alignment with Diamondback and growth from large, stable operators-positions the company to benefit from ongoing U.S. energy security priorities and persistent global fossil fuel demand, which supports long-term revenue growth and dividend-paying capacity.
  
• The combination of organic production growth, especially from Diamondback-operated assets (projected to deliver 15% higher oil production per share in 2026 vs. 2025), and consistent share repurchases at currently depressed valuations, creates a powerful catalyst for per-share earnings growth and higher total shareholder return.
  
• The shift to aggressively return excess free cash flow (post hitting the $1.5B net debt target) to shareholders via buybacks and variable dividends leverages Viper's hard-asset, yield-focused equity profile, which could enhance market appeal, lower cost of capital, and drive share price appreciation, impacting net margins and total payout ratios.
  
• Enhanced operational efficiency is anticipated from integrating Sitio's advanced automation and royalty recovery systems, which, combined with Viper's low operating cost model, is expected to improve net margins by minimizing administrative expenses and ensuring proper royalty payments.

Viper Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Viper Energy's revenue will grow by 42.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 39.6% today to 15.3% in 3 years time.
• Analysts expect earnings to reach $414.0 million (and earnings per share of $2.27) by about August 2028, up from $371.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $335.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 56.6x on those 2028 earnings, up from 13.5x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.6x.
• 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 6.86%, as per the Simply Wall St company report.

Viper Energy Future Earnings Per Share Growth

Risks

• Viper Energy remains heavily reliant on third-party operators-including a handful of large-cap companies (Exxon, Oxy, EOG, Conoco)-for production growth outside of Diamondback, exposing it to counterparty and operational risks that could lead to revenue instability if these operators alter development plans or face challenges.
  
• The company's asset concentration in the Permian Basin creates geographic risk; regional regulatory changes, infrastructure bottlenecks, or basin-specific productivity declines could negatively impact long-term revenue and net margins.
  
• Successful integration and synergy realization from the Sitio Royalties acquisition is a key assumption for sustained growth, but the need to digest back-to-back large deals increases the risk of operational distraction or underperformance, potentially impacting projected accretion, free cash flow, and dividend growth.
  
• The stated strategy to sell noncore (non-Permian) assets is highly dependent on favorable market conditions; subdued oil price strips or weak buyer demand could lead to delayed dispositions or lower-than-expected transaction values, affecting debt reduction plans and the company's ability to maximize distributable cash and support dividends.
  
• Long-term secular trends-including the global push for decarbonization, increasing ESG pressures, and potential regulatory actions targeting fossil fuels-could raise Viper's cost of capital, reduce investor appetite, and ultimately suppress revenue growth and shareholder returns.

Valuation

• The analysts have a consensus price target of $54.357 for Viper Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $66.0, and the most bearish reporting a price target of just $45.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $414.0 million, and it would be trading on a PE ratio of 56.6x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $38.32, the analyst price target of $54.36 is 29.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.