STR - Upgrading Sitio Royalties To A Buy Following A 20% Decline In Share Price

2024-02-09 17:55:22 ET

Summary

• Sitio Royalties has taken steps to reduce debt and increase cash flows, including refinancing high-interest senior notes and selling off assets in the Appalachia and Anadarko Basins.
• These actions will save the company over $20 million annually in interest expenses, which will be used for additional distributions and debt repayment.
• Strong permitting activity in the DJ basin will provide additional avenues for revenue growth.
• An 8.5% dividend can be supported at $74/barrel WTI.
• Following the recent share price decline, I have upgraded STR to a BUY.

Thesis

Sitio Royalties Corp. ( STR ) is an oil-heavy royalty company that has taken several actions to reduce its costs of debt and increase cash flows available to shareholders. The company has refinanced its high interest rate senior notes due in 2026 while also selling off its Anadarko and Marcellus assets to pay down debt. As a result of these actions, the company stands to directly save over $20 million annually in reduced interest expenses....

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