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Bull of the Day: Texas Pacific Land (TPL)

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Texas Pacific Land (TPL - Free Report) is a Zacks Rank #1 (Strong Buy) that engages in the land and resource management, and water services and operations businesses. The company provides holistic water services to oil and gas operators in the Permian Basin.

As energy prices spiked in 2022, so did TPL, more than doubling in the first ten months of the year. However, as energy prices came in, so did TPL and the stock fell over 50%.

Looking forward, bullish investors look to be in a good spot as energy prices are moving higher once more.

More about Texas Pacific Land

The company was formed in 1888 and is headquartered in Dallas, Texas. It employs about 100 people and has a market cap of $14 billion.

The company is one of the largest landowners in Texas, holding approximately 874,000 acres of land in West Texas.

TPL has two segments:

Land and Resource Management- This segment focuses on managing TPL’s oil and gas royalty interest and surface acres located in 19 different counties. Revenue streams include oil and gas royalties, easements, commercial sales, land sales, and material sales.

Water Service and Operations- This segment offers operators service across the Permian Basin, focusing on water sourcing, gathering, treatment, recycling, disposal, tracking analytics, and well testing. It is also responsible for infrastructure and development.

The stock has a Forward PE of 37 and the stock pays a dividend of just under 1%.

Q2 Earnings

Texas Pacific last reported earnings back in August, with a 17% EPS beat. Earnings were below last year, as revenue came in at $160.6M v the $176.3M y/y.

This of course makes sense with lower energy prices, which pays out lower royalties. However, losses were largely offset by increased revenue from the business water sales and royalties’ income.

With the recent uptick in oil and natural gas, analysts are lifting estimates.

Estimates Trend Higher

Looking at earnings estimates, they are on the move higher since earnings.

For the current quarter, numbers go up from $12.87 to $13.55 over the last 60 days. This is a hike of 5%.

Next quarter we see a similar gain of 2%, with estimates going from 12.34 to $13.56 over that same time frame.  

Looking at a longer-term time frame it gets exciting.

For the current year, we see estimates have ticked 6.5% over the last 60 days, going from $46.83 to $49.83. For next year we see a spike of 17%, with estimates going from $62.13 to $71.54.

The Technical Take

Investors had a tough time earlier this year as prices moved below all moving averages this summer. But after the recent rally in energy, the stock has rallied and stabilized around the level it started the year.

For those looking for an entry, below are some levels to watch:

21-day Moving Average (MA): $1840

50-day MA: $1760

200-day MA: $1730

In Summary

Texas Pacific Land gives investors exposure to energy in a unique way. This historical company will benefit from the recent rise in energy prices and the desire of energy companies to utilize their land.  

After a rough ride earlier this year, the stock looks to have stabilized and is ready for a push higher into the end of the year. Investors should target any pullbacks to technical support and look for a good finish to 2023 if energy remains strong.

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