| Snowflake Score | |
|---|---|
| Valuation | 5/6 |
| Future Growth | 0/6 |
| Past Performance | 4/6 |
| Financial Health | 3/6 |
| Dividends | 3/6 |
FANG Stock Overview
Diamondback Energy, Inc., an independent oil and natural gas company, focuses on the acquisition, development, exploration, and exploitation of unconventional and onshore oil and natural gas reserves in the Permian Basin in West Texas.
Diamondback Energy, Inc. Competitors
Price History & Performance
| Historical stock prices | |
|---|---|
| Current Share Price | US$119.40 |
| 52 Week High | US$162.24 |
| 52 Week Low | US$94.06 |
| Beta | 2.06 |
| 1 Month Change | -14.26% |
| 3 Month Change | -1.44% |
| 1 Year Change | 24.31% |
| 3 Year Change | 43.65% |
| 5 Year Change | 18.51% |
| Change since IPO | 582.29% |
Recent News & Updates
Diamondback Energy: Your FANG For The Next Decade?
Summary The global oil industry is poised to start a long-term secular bull market thanks to subdued supply and rising demand. Diamondback Energy is one of America's largest onshore oil producers with a low breakeven point and high free cash flow generation. The company is in a terrific spot to boost shareholder distributions and beat both its peers and the market for many years to come. Introduction How convenient that the Diamondback Energy (FANG) ticker is "FANG" as it allows me to make a pun in the title that incorporates a changing secular trend in the oil and gas industry, and what is poised to become outperformance of oil stocks on a long-term basis. Diamondback is one of America's largest onshore oil producers with a low breakeven price, a changing hedging strategy thanks to quickly falling debt levels, allowing for a higher price realization, and a focus on shareholder returns. Given the company's developments and energy market fundamentals, in general, I believe FANG will be a source of high shareholder returns for years to come, offering investors a great tool to add high-quality exposure to their portfolios. So, without further ado, let's look at the details! The New Era For Energy I've been on top of energy since 2020 as the post-pandemic (referring to the first global lockdowns) offered tremendous opportunities across many industries. The demand came back, companies restarted production, and demand for energy returned. Little did most people know back then, it was also the start of a new secular bull market for energy companies. As the chart below shows, energy stocks as displayed by the SPDR Energy Select Sector ETF (XLE) have gone nowhere between 2008 and 2021. This includes dividends as it's on a total return basis. During this period, energy stocks significantly underperformed the market as the orange ratio in the lower part of the chart below shows. TradingView (Black = FANG, Orange = XLE/SPY Ratio) However, prior to 2007, energy stocks were a tremendous source of wealth. The same goes for the two years after the pandemic started - and the coming years, I think. In 2020, I became bullish on Exxon Mobil (XOM) as discussed in this article. Back then, my bull case was mainly based on the fact that market participants underestimated the future demand for oil and the fact that the market was only looking at "tech" and "growth" stocks, leaving energy companies in the dirt with ridiculously low valuations. Then, in 2021, something changed. As demand came back, oil companies did not increase output. For the first time since the start of the shale revolution in the US, onshore oil production did not accelerate. At 11.8 million barrels of oil per day, production is well-below pre-pandemic levels and the uptrend in production is the slowest since the years prior to 2012. EIA What's interesting - and very important - is that we're now on the verge of a new long-term secular uptrend in oil prices. As the chart below shows, energy and mining stocks have an extremely low weighting in the S&P 500. Even lower than during the bottom in the late 1990s before commodity stocks took off. Goehring & Rozencwajg Almost always, cycles are driven by the dance between supply and demand. The poor relative performance of energy stocks after 2007 was driven by accelerating investments in low-cost oil and gas projects. Both onshore and offshore. This changed after the pandemic. Global oil capital spending was at roughly $640 billion prior to the 2014 oil crash. This caused supply to accelerate. After 2015, CapEx rallied again as companies needed higher supply growth to repair their balance sheets. It once again resulted in more supply, making oil prone to the impact of the pandemic, which caused prices to crash again. Seeking Alpha In order to satisfy the expected oil demand in 2030, CapEx needs to accelerate, which is not happening as the updated chart below shows. The super-majors are not boosting production. If anything, production has come down for three straight quarters. Goehring & Rozencwajg Even if CapEx were to accelerate again, it would take years to get supply to levels that satisfy demand. Yet, that may not happen for one major reason: oil companies aren't willing to. Oil companies prefer to protect themselves against new periods of weakening demand as none of them expect to get support when times become tough again. After all, the global push for net zero is making one thing clear: "we" don't want fossil fuels anymore. Treasury Secretary Janet Yellen doubled down on this. The Hill According to The Hill: “We will rid ourselves from our current dependence on fossil fuels,” Yellen’s prepared remarks say. “Our plan — powered by the Inflation Reduction Act — represents the largest investment in fighting climate change in our country’s history. It will put us well on our way toward a future where we depend on the wind, sun, and other clean sources for our energy,” her remarks continue. I could go on and on on this topic and I'm sure that most readers are familiar with my articles on this matter. Hence, I believe that the following comments from Bloomberg hit the nail on the head: "They got castrated in 2016, they got slaughtered in 2020, and then they got demonized for ruining the environment after that," said Smead, who is Continental Resources Inc.'s largest independent investor and a top-20 shareholder in Occidental Petroleum Corp. "Why would you do anything to help the people that hate you?" Shale explorers also are unwilling to invest beyond current drilling plans because of "deteriorating efficiencies" amid cost inflation, said Noah Barrett, lead energy analyst at Janus Henderson, which manages about $350 billion. One chart I have shared in a number of articles is the one below. It shows that the 23 S&P 500 energy companies (FANG is one of them) are now prioritizing shareholder distributions over CapEx, which is a huge move that perfectly visualizes the shift in priorities in this sector. Bloomberg To quote Goehring & Rozencwajg: As depletion takes hold, supply falters, demand grows, and inventory gluts eventually get worked off. The stage is set for the next bullish cycle to start. With all of this said, there are many ways to benefit from undervalued energy stocks and a shift from production growth to shareholder distributions. I prefer drilling companies that have at least some (or all) of the characteristics below: Low breakeven production prices - to generate more free cash flow- A healthy or quickly improving balance sheet - to allow the company to focus on shareholders instead of debt holders. A fair valuation. After all, we don't want to overpay. Other factors. Diamondback Energy is a terrific place to be as I will explain now. Quality Oil Exposure - Giving Diamondback Energy A Shot As I've never covered FANG, let's start at the very beginning. Headquartered in Midland, Texas, Diamondback is one of America's largest onshore producers of oil and gas with a current market cap of $24.0 billion. In 2021, the company produced roughly 2.3 GJ of energy. That's roughly 18% of the total energy demand of a country like Germany. To give you a more common number, FANG produced 375 MBOE/d (thousand barrels of oil equivalent per day). Roughly 60% of this was oil. Natural gas liquids and natural gas accounted for 20%, each. Founded in 2007 with the acquisition of 4,174 net acres in the high-margin Permian Basin, the company went public in 2012. Since then, the company has outperformed the S&P 500, energy stocks, and the drilling & exploration industry, of which it is obviously a part. FANG Total Return Level data by YCharts If we ignore the hugely successful first years after the IPO, we see that FANG still did very well, trailing the market by only 900 basis points over the past five years while beating its energy peers by a wider margin. FANG Total Return Level data by YCharts Before we dive into financial numbers, it is important to mention that Diamondback has large stakes in two other energy companies. FANG owns Viper Energy Partners GP LLC, the general partner of Viper Energy (VNOM) as well as 54% of the limited partner interest. VNOM owns close to 27 thousand net royalty acres, 55% of which are operated by FANG. Diamondback Energy Further, FANG's publicly traded subsidiary Rattler Midstream LP is focused on the ownership, operation, development, and acquisition of midstream infrastructure assets in the Midland and Delaware Basins of the Permian Basin. Diamondback owns Rattler Midstream GP LLC, the general partner of Rattler and approximately 74% of the limited partner interests in Rattler. Because of its operations in the Permian Basin, the company's cash flow breakeven in the mid-30s per barrel, which is great news. Moreover, the company is about 60% hedged, with relatively low hedging costs. The company expects to roll forward its existing hedges. According to the company: [...] protecting for a rainy day, trying to spend around $1.50 to $2 a barrel to buy those puts, and we want to be about 60% hedged going into a particular quarter. So if you look at our hedge book, about 60% hedged for Q3, going down to about 0% by Q2, Q3 of 2023. And we'll just continue to keep rolling that forward for rainy day insurance. It's also interesting to mention that Diamondback expects a 2023 recession, which is becoming the base case. However, the company says that the world appears to be chronically short physical barrels with not a lot of spare capacity to fill that gap. This means the company is not changing its hedging strategy. With all of this in mind, FANG is not expected to significantly grow output. I think it's a little premature to do much forecasting into 2023. But I can tell you kind of our base case is looking at something at the same activity level, probably generating something in the low single digits in terms of the growth rate. But again, it's more of an output. Between 2Q22 and 1Q22, oil production remained flat. This is not expected to change in the current third quarter. The realized cash margin improved to 83% of the unhedged oil price thanks to a record low reinvestment rate of 26% and subdued cash CapEx. This allowed free cash flow to rise by 37% to $7.46 per share. On a full-year basis, FANG is expected to maintain annual CapEx close to $1.9 billion with minimal growth to $2.2 billion by 2024. As a result of high oil prices, the company is in a good spot to do $4.7 billion in free cash flow this year. That's 31% of the company's $24.0 billion market cap. It's one of the highest free cash flow yields I have encountered this year among energy companies. Even next year, the implied FCF yield is still 16.5%. TIKR.com What this does is it allows the company to reduce debt and reward investors. This year, net debt is expected to fall to $4.5 billion, or less than 0.6x EBITDA. That's very healthy. Even prior to the pandemic, the company had a sub-3x net leverage ratio. It is, therefore, no surprise that the company has a BBB credit rating. Also, FANG has no major maturities until 2025, which gives the company a lot of room to deal with the elevated rate environment. And it opens up so many opportunities to distribute cash. Using 2Q22 numbers, we see that the company is looking at three ways to distribute cash: a base dividend, stock repurchases, and a variable dividend.
Diamondback Energy: Slipping Along With Oil Prices
Summary The quarter's revenues were $2,768 million, with a net income of $1,416 million or $7.93 per diluted share. Production for 2Q22 was 380.451K Boep/d, down slightly sequentially and down from 401.45K Boep/d the same quarter a year ago. I recommend buying FANG on any weakness at or below $125 with potential lower support at $112.25. Introduction Midland, Texas-based Diamondback Energy, Inc. (FANG) released its second-quarter 2022 on August 1, 2022. Also, On August 24, 2022, Diamondback Energy completed the acquisition of Rattler Midstream LP. Note: This article is an update of my article published on June 1, 2022, about the preceding quarter. 1 - 2Q22 results snapshot and recent news The company reported the second quarter of 2022 adjusted earnings of $7.07 per share, beating analysts' expectations. This quarter's oil-equivalent production was 380.451K Boepd (58.1% liquids) sold at a record oil composite price of $79.49 per Boe compared with $45.63 a year ago. Oil production was 221.1K Bop/d. This quarter's record revenues of $2.768 billion beat estimates, up 64.7% from the year-ago quarter's sales of $1.681 billion. The outstanding results can be attributed to the continued surge in energy prices in 2Q22. Diamondback pays a regular quarterly of $0.70 a share and declared a variable dividend of $2.35 for a total dividend this quarter of $3.05 in 2Q22. Travis Stice, the CEO, said in the conference call: We once again delivered operationally, producing over 221,000 barrels of oil per day, near the high end of our quarterly guidance range. Our discretionary cash flow or operating cash flow before working capital changes totaled $1.8 billion, up 27% quarter-over-quarter, setting a new high for the company. This increase was primarily due to a favorable backdrop -- macro backdrop as well as improvement to our realized pricing as hedges put on last year continue to roll off. 2 - Investment Thesis The investment thesis for FANG is still complex due to the high valuation triggered by elevated oil and gas prices, which are now going down after the FED signaled that it would continue hiking interest rates even if it is at risk of triggering a recession. Oil prices are below $90 per barrel, which is down compared to the $135+ per barrel experienced a few months earlier. It is time to take some profits off. However, Diamondback Energy should be considered a long-term investment, and it is reasonable to accumulate the stock on any significant weakness. However, the volatility attached to the oil segment should compel you to trade short-term LIFO FANG using at least 30% of your entire position. This two-level strategy has prevailed in my marketplace, "The Gold and Oil Corner," and I believe it is the most rewarding strategy in those circumstances. Unfortunately, only U.S. investors can use LIFO, but there is still an alternative for others. Please read my note at the end of this article. 3 - Stock Performance Diamondback Energy owns one subsidiary after acquiring Rattler Midstream. The subsidiary is Viper Energy Partners (VNOM), which trades separately. Diamondback Energy's performance on a one-year basis is solid, with a jump of 75%. However, the rally is now showing some signs of fatigue after the FED signaled that it is not done with its rate hike, which increases the risk of a recession. Data by YCharts Diamondback Energy - 2Q22 Quarterly Financial Table: The Raw Numbers Diamondback FANG 2Q21 3Q21 4Q21 1Q22 2Q22 Total Revenues and others in $ Million 1,679 1,910 2,022 2,408 2,768 Net income in $ Million 311 649 1,002 779 1,416 EBITDA $ Million 820 1,261 1,681 1,372 2,225 EPS diluted in $/share 1.71 3.56 5.54 4.36 7.93 Operating cash flow in $ Million 954 1,199 1,167 1,252 1,707 CapEx in $ Million 367 828 808 733 553 Free Cash Flow in $ Million 587 371 359 519 1,154 Cash and cash equivalent $ Million 344 457 654 149 43 Total Debt in $ Million 7,364 6,945 6,687 5.848 5.456 Dividend per share in $ 0.45 0.50 0.60 3.05 Shares outstanding (diluted) in Million 181.97 182.15 180.18 178.56 176.88 Oil Production 2Q21 3Q21 4Q21 1Q22 2Q22 Oil Equivalent Production in K Boepd 401.45 404.27 387.07 381.38 380.45 Oil Composite realized price ($/Boe)/Hedge $Boe 45.63/ 36.82 51.00/ 40.76 56.47/ 45.30 69.60/ 61.30 79.49/ 70.65 OIL % 60% 59% 59% 58% 58% Oil in Bo 22,067 22,058 20,819 20,055 20,120 NG in Mcf 44,506 45,571 45,220 42,645 42,912 NGL in Boe 7,047 7,540 7,254 7,161 7,349 Total in Boe 36,532 37,193 35,610 34,324 34,621 Source: Diamondback Energy press release Analysis: Revenues, Free Cash Flow, Net Debt, and Oil & Gas Production 1 - Quarterly revenues and others were $2,768 million in 2Q22 FANG Quarterly revenues history (Fun Trading) FANG announced the second quarter of 2022 results on August 1, 2022. The quarter's revenues were $2,768 million, with a net income of $1,416 million or $7.93 per diluted share. The 2Q22 cash operating costs were $12.24 per Boe, up 31.1% from the prior-year quarter. Lease operating expense LOE was $4.59 per Boe, compared with $4.30 in the second quarter of 2021. Gathering and transportation expenses increased in the first quarter of 2022 to $1.76 per Boe from $1.53 end of 2021. we noticed some inflationary pressures building up in costs. 2 - Generic free cash flow was $1,154 million in 2Q22 FANG Quarterly Free cash flow History (Fun Trading) Note: The generic free cash flow is cash from operating activities minus CapEx. The company has a different way of calculating the FCF, which indicates $1.3 billion. Operating cash flow is $1,707 million, and CapEx is $553 million. Trailing 12-month free cash flow is now $2,823 million, with the first quarter's free cash flow at $1,154 million. FANG declared a 2Q22 base cash dividend of $0.75 per share and announced a variable cash dividend of $2.30 per share. It is a total base-plus-variable dividend of $3.05 per share for 2Q22. Also, FANG repurchased 2,368,816 shares of common stock in 2Q22 for $303 million (at a weighted average price of $127.61/share) and repurchased 1,761,363 shares of common stock in 3Q22 (as of August) for $200 million (at a weighted average price of $113.70/share). 3 - Net debt is $5.618 billion in 2Q22 (incl. subsidiaries). Excellent profile. FANG Quarterly Cash versus Debt history (Fun Trading) As of June 30, 2022, FANG had approximately $43 million in cash and cash equivalents and $5.618 billion ($5.456 billion in LT Debt, including current) in total debt, representing a net debt-to-Adj. EBITDA 0.92x. (see table below) or a debt-to-capitalization of 27.3%. FANG's total debt, excluding its subsidiary, is $4,205 million. FANG Balance sheet Presentation (Fun Trading) 4 - Quarterly Production was 380.451 Boep/d in 2Q22 FANG Quarterly Production equivalent history (Fun Trading) Production for 2Q22 was 380.451K Boep/d, down slightly sequentially and down from 401.45K Boep/d the same quarter a year ago (see chart above).
We Think Diamondback Energy (NASDAQ:FANG) Can Stay On Top Of Its Debt
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of...
Shareholder Returns
| FANG | US Oil and Gas | US Market | |
|---|---|---|---|
| 7D | -7.3% | -4.5% | -2.0% |
| 1Y | 24.3% | 35.9% | -20.3% |
Return vs Industry: FANG underperformed the US Oil and Gas industry which returned 29.9% over the past year.
Return vs Market: FANG exceeded the US Market which returned -22.1% over the past year.
Price Volatility
| FANG volatility | |
|---|---|
| FANG Average Weekly Movement | 6.7% |
| Oil and Gas Industry Average Movement | 8.1% |
| Market Average Movement | 6.9% |
| 10% most volatile stocks in US Market | 15.8% |
| 10% least volatile stocks in US Market | 2.8% |
Stable Share Price: FANG is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 7% a week.
Volatility Over Time: FANG's weekly volatility (7%) has been stable over the past year.
About the Company
| Founded | Employees | CEO | Website |
|---|---|---|---|
| 2007 | 870 | Travis Stice | https://www.diamondbackenergy.com |
Diamondback Energy, Inc., an independent oil and natural gas company, focuses on the acquisition, development, exploration, and exploitation of unconventional and onshore oil and natural gas reserves in the Permian Basin in West Texas. It focuses on the development of the Spraberry and Wolfcamp formations of the Midland basin; and the Wolfcamp and Bone Spring formations of the Delaware basin, which are part of the Permian Basin in West Texas and New Mexico. As of December 31, 2021, the company’s total acreage position was approximately 524,700 gross acres in the Permian Basin; and estimated proved oil and natural gas reserves were 1,788,991 thousand barrels of crude oil equivalent.
Diamondback Energy, Inc. Fundamentals Summary
| FANG fundamental statistics | |
|---|---|
| Market Cap | US$25.59b |
| Earnings (TTM) | US$3.83b |
| Revenue (TTM) | US$8.64b |
5.5x
P/E Ratio2.5x
P/S RatioIs FANG overvalued?
See Fair Value and valuation analysisEarnings & Revenue
| FANG income statement (TTM) | |
|---|---|
| Revenue | US$8.64b |
| Cost of Revenue | US$942.00m |
| Gross Profit | US$7.70b |
| Other Expenses | US$3.87b |
| Earnings | US$3.83b |
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
n/a
| Earnings per share (EPS) | 21.57 |
| Gross Margin | 89.10% |
| Net Profit Margin | 44.37% |
| Debt/Equity Ratio | 38.9% |
How did FANG perform over the long term?
See historical performance and comparison