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With a yield of 2.62%, Diamondback Energy (FANG) is an independent oil and natural gas company in Midland, Texas that focuses on the acquisition, development, and exploration of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.
FANG also just paid out a dividend of $1 per share on August 21
Helping, analysts at William Blair initiated coverage of FANG with an outperform, noting that Diamondback’s “best in class structure” helped the company generate high free cash for each barrel of oil equivalent, as noted by Investing.com. Analysts at UBS raised their price target on the FANG stock to $171 with a buy rating, too.
Making FANG even more attractive, the company is committed to returning at least 50% of its quarterly free cash flow to shareholders. That’s in addition to investing more in stock buybacks, which was just increased by $2 billion to $8 billion per approval from the Board of Directors.
Earnings were mixed.
In its most recent quarter, Diamondback Energy’s EPS of $2.67 missed estimates by seven cents. However, revenue of $3.68 billion, up 48.4% year over year, beat by $350 million.
FANG also reported oil production of 496 MBO/d and generated $1.7 billion in operating cash flow and $1.2 billion in free cash flow.
In addition, FANG cut $100 million from capital spending. In fact, after cutting its capital budget by 10% to a range of $3.4 billion to $3.8 billion from $3.8 billion to $4.2 billion, the company just announced it will cut another $100 million from its capital budget for fiscal year 2025.
FANG also narrowed its full-year production guidance. And it noted that earnings were negatively impacted by a year over year decline in Brent crude prices coupled with weaker global growth and an increase in OPEC+ supply.
Even better, FANG could be a major beneficiary of the AI boom.
According to JLL.com, “Data center storage capacity is expected to grow from 10.1 zettabytes (ZB) in 2023 to 21.0 ZB in 2027, for a five-year compound annual growth rate of 18.5%. “
“Not only will this increased storage generate a need for more data centers, but generative AI’s greater energy requirements – ranging from 300 to 500+ megawatts – will also require more energy efficient designs and locations. The need for more power will require data center operators to increase efficiency and work with local governments to find sustainable energy sources to support data center needs,” added JLL.com.
That alone creates a big opportunity for natural gas and renewable energy stocks, like FANG.
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Written by Ian Cooper