MTDR - Matador Resources: Profitable Oil Growth Raising Target

2024-04-09 07:44:46 ET

Summary

• Matador Resources has seen strong oil-focused production growth, ranking it in the top tier of its peers.
• The company's acquisition of Advance Energy Partners has proven to be a good move, addressing concerns about inadequate drilling locations and boosting production.
• My model suggests MTDR could generate over $750 million in free cash flow in 2024, and $1.1billion in '25 supporting a target price of over $85 per share.
• MTDR's "brick-by-brick" profitable growth strategy tends to outperform in strong commodity price environments.

Last summer, I wrote a piece covering Matador Resources ( MTDR ) titled “ Matador Resources: Oil Growth with a Near-Term Upside Catalyst ,” rating the stock a strong buy.

My thesis was straightforward.

Last April, MTDR acquired privately held Advance Energy Partners for $1.6 billion, increasing its acreage in the northern Delaware Basin, the western part of the Permian Basis that includes acreage in both west Texas and New Mexico. I expected that deal, plus organic growth from its existing operations, to power strong oil-focused production growth for MTDR, maintaining its position as one of the fastest-growing shale producers in the US.

Last July I also expected MTDR to continue to outperform its guidance in terms of production growth, costs and capital efficiency.

Finally, I created a discounted cash flow ((DCF)) model of free cash flows for the stock over the next few years, using this model to derive my price target of $66, up about 25% from the trading price at the time.

Overall, my bullish cash for MTDR proved prescient:

According to Bloomberg, MTDR is up 34.3% on a dividends-reinvested basis from the article’s publication on July 17, 2023, through the close on Friday, April 5 ^th compared to a total return of 26.12% for the widely followed SPDR S&P Oil & Gas Exploration & Production ETF ( XOP ), around 16.4% for the S&P 500 and 23.5% for the S&P 500 Energy Index....

For further details see: