Roth MKM analyst Leo Mariani wrote in a January 22 research note that he expects a solid fourth quarter from Viper Energy Partners LP (VNOM:NASDAQ). He forecasts oil production exceeding both consensus estimates and the high end of VNOM's guidance range. Total fourth quarter volumes are also expected to surpass consensus.
Still, Mariani maintains his Buy rating and US$32 price target based on a 6% yield.
"We rate Viper Energy (VNOM) a Buy as this pure-play Permian minerals name has the highest organic growth rate vs. peers, a strong dividend, and a multiyear line of sight on its operations not had by its peers," Mariani said.
4Q Production Beats Guidance
VNOM should post fourth-quarter production above prior guidance in Mariani's model. He forecasts 24,901 barrels of oil per day, topping consensus by 3% and nearing the high end of company guidance. Natural gas and NGL volumes also beat the top end of guidance at 45,498 boe per day.
Diamondback Energy's strong results bode well for Viper's fourth quarter, given the sponsor-operated wells account for over half of its output. Realized commodity prices are estimated at around 98.6% of WTI, a typical premium.
Slowing Payout Growth
A US$35 million share repurchase is expected for the fourth quarter, up from US$9.7 million last quarter. This factors the large buyback tied to Viper's November equity offering.
However, Mariani projects the fourth quarter cash distribution sinking 20% sequentially to US$0.45 per share, now 10% under consensus. He attributes this to updated commodity price modeling.
Financial Forecasts Lowered
The analyst has trimmed his 2023 cash flow per share forecast by 4% due to recent oil price weakness in late 2022. Mariani's 2024 estimate falls 8%, similarly citing lower price deck assumptions.
Despite tempered near-term cash generation, he lifts his price target by 3% to US$32 per share. The revised valuation equates to a 6% annualized yield on next year's distribution projections.
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Disclosures for Roth MKM, Viper Energy Partners LP, January 22, 2024
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures: The price target and rating history for Viper Energy Partners LP prior to February 1, 2023 reflect MKM’s published opinion prior to the acquisition of MKM Partners, LLC by Roth Capital Partners, LLC. The price target and rating history for Diamondback Energy, Inc. prior to February 1, 2023 reflect MKM’s published opinion prior to the acquisition of MKM Partners, LLC by Roth Capital Partners, LLC.
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