FANG - Diamondback Energy: Oil Outlook Improving But Valuation Is Stretched And Merger May Fail

2024-04-24 22:27:41 ET

Summary

• Diamondback Energy's stock has risen by around 73% from 2022, delivering a total return of about 80% since I published my bullish outlook.
• The company's primary income driver is the price of crude oil, and as oil prices rose, it has seen dramatic profit and valuation growth.
• Diamondback is focused on the Permian Basin for cheap production, but there are concerns about the sustainability of production growth without increased capital expenditure spending.
• As the oil market stands, it seems likely that total US production will stagnate or decline, potentially leading to higher oil prices regardless of geopolitical events.
• I believe Diamondback Energy is slightly overvalued today and that it may be best to buy the stock only after we see oil rise to over $100 or its share price fall below ~$170.

In mid-2022, I published a bullish outlook on the oil and gas producer Diamondback Energy ( FANG ) in " Diamondback Energy : Oil Producers To Benefit From Substantial Decline In Crude Reserve." At that time, I believed that crude oil prices would inevitably rebound due to the significant decline in total US storage levels and tepid production growth. Combined with rising exports to Europe, offsetting Russia, it seems likely that oil prices would not remain as low as they were then....

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