Delaware Basin Midstream Expansion Will Strengthen Margins Despite Risks

Key Takeaways

• Expansion of midstream capacity and improved operational efficiencies are set to boost margins, making earnings less dependent on commodity price swings.
  
• Concentrated assets and robust inventory in the Delaware Basin support peer-leading production growth and sustained cash flow, with strong capital management enabling higher shareholder returns.
  
• Geographic and regulatory risks, capital intensity, policy uncertainty, and energy transition trends threaten Matador's revenue stability, growth sustainability, and long-term profitability.

Catalysts

An independent energy company, engages in the acquisition, exploration, development, and production of oil and natural gas resources in the United States.

• Expanding midstream capacity and third-party volumes (with the Marlan plant ramping toward full utilization and high third-party repeat business) is set to deliver incremental, fee-based revenues and improve overall net margins, making Matador less reliant on commodity prices and supporting sustained earnings growth.
  
• Continued disciplined operational execution-especially through drilling and completion efficiencies, adoption of advanced well techniques ("U-Turn" and trimul-frac), and strong vendor relationships-drives lower unit costs, which enhances margins and positions Matador for superior profitability even as service cost tailwinds remain unaccounted for in forward estimates.
  
• Matador's concentrated acreage in the Delaware Basin, coupled with multi-zone development and a robust drilling inventory, enables above-average production growth rates versus peers, directly supporting future top-line revenue increases and cash flow durability.
  
• Ongoing global demand for affordable oil and natural gas-particularly as developing economies continue to grow and LNG export capacity increases-provides a stable backdrop for Matador's long-term hydrocarbon sales and underpins a constructive outlook for revenue and earnings.
  
• The company's strong balance sheet, ample liquidity, and clear capital allocation framework (including buybacks, rising base dividends, and opportunistic brick-by-brick M&A) create flexibility to navigate volatility, enhance free cash flow, and support higher shareholder returns.

Matador Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Matador Resources's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 27.1% today to 17.9% in 3 years time.
• Analysts expect earnings to reach $743.2 million (and earnings per share of $7.0) by about July 2028, down from $931.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.2 billion in earnings, and the most bearish expecting $630 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.4x on those 2028 earnings, up from 6.8x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.03%, as per the Simply Wall St company report.

Matador Resources Future Earnings Per Share Growth

Risks

• Heavy operational and asset concentration in the Delaware Basin exposes Matador to geographic and regulatory risks, which could create volatility and pressure revenue if adverse regional events or new regulations impact drilling or production.
  
• Continued capital intensity for both drilling and midstream investments means Matador must consistently generate strong free cash flow; if commodity prices fall or remain weak ("lower-for-longer" scenario), this could reduce free cash flow and earnings, threatening the sustainability of current growth.
  
• Regulatory and policy uncertainty, especially from Washington and ongoing environmental scrutiny, could lead to stricter emissions controls, higher compliance costs, or future limitations on drilling, negatively impacting margins and profit growth.
  
• Reliance on oil and gas production for both upstream and midstream earnings increases vulnerability to a long-term global shift toward renewables, electrification, and declining oil demand, potentially reducing long-term revenue and net margins.
  
• Challenges in consistently securing new reserves or acquisition targets ("brick-by-brick" approach) may increase reserve depletion risk; failure to replenish or expand inventory could lead to production declines over time, directly impacting future revenue and earnings.

Valuation

• The analysts have a consensus price target of $64.611 for Matador Resources 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 $89.0, and the most bearish reporting a price target of just $48.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.1 billion, earnings will come to $743.2 million, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $50.92, the analyst price target of $64.61 is 21.2% 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.