Acquisitions In Shelby Trough And East Texas Will Boost Future Production

Key Takeaways

• Strategic acquisitions in key regions and accelerated development plans are poised to enhance long-term growth and revenue potential.
  
• Strong asset portfolio and financial position enable capitalization on favorable market conditions, bolstering earnings and shareholder returns.
  
• Weak natural gas pricing and decreased production volumes threaten revenue, while increased expenses and acquisition reliance pose risks to income and financial stability.

Catalysts

Owns and manages oil and natural gas mineral interests.

• Black Stone Minerals is focused on increasing production through its development activities in high-interest areas, which is expected to drive revenue growth in 2025.
  
• The company is strategically acquiring mineral and royalty assets, particularly in the Shelby Trough and East Texas, which adds to its long-term inventory and development opportunities, potentially boosting future earnings.
  
• Black Stone's accelerated development agreements in the Louisiana Haynesville and additional wells planned for 2025 are expected to enhance production volumes, thereby positively impacting revenue.
  
• With a strong portfolio of both oil and gas assets, the company is positioned to capitalize on favorable natural gas pricing fundamentals and anticipated growth in LNG demand, potentially improving net margins.
  
• A clean balance sheet and ample liquidity allow for continued strategic acquisitions and development activity, which are likely to support future earnings and shareholder returns.

Black Stone Minerals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Black Stone Minerals's revenue will grow by 11.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 56.6% today to 56.0% in 3 years time.
• Analysts expect earnings to reach $332.2 million (and earnings per share of $1.56) by about March 2028, up from $241.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.6x on those 2028 earnings, down from 13.3x today. This future PE is lower than the current PE for the US Oil and Gas industry at 12.7x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Black Stone Minerals Future Earnings Per Share Growth

Risks

• Weak natural gas pricing in the second half of 2024 hindered production, which could continue to affect future revenue and net income if prices do not improve as expected.
  
• Production volumes have decreased, with both mineral and royalty production and total production volumes down from the previous quarter, potentially impacting revenue streams if the trend continues.
  
• The developments on the accelerated drilling agreements may result in a slightly reduced royalty burden, which could impact net margins even though it accelerates production.
  
• Increases in general and administrative expenses due to hiring and promotions could pressure net income if revenue growth does not outpace these rising costs.
  
• The company's reliance on future acquisitions to drive growth entails financial and execution risk, potentially impacting both the balance sheet and earnings if acquisitions do not perform as expected.

Valuation

• The analysts have a consensus price target of $16.0 for Black Stone Minerals based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $593.3 million, earnings will come to $332.2 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 7.1%.
• Given the current share price of $15.18, the analyst price target of $16.0 is 5.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.