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Diamondback (FANG) Up 57.1% in 6 Months: More Room for Upside?

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Even though the COVID woes prevail, shares of Diamondback Energy, Inc. (FANG - Free Report) have surged 57.1% in the past six months, outperforming the industry’s 55.8% rise.

Headquartered in Midland, TX, the company with a market cap of $9 billion is one of the independent oil and gas exploration & production companies with its primary focus on the Permian Basin, which covers an area of around 394,000 net acres.

The company’s earnings beat estimates in all the trailing four quarters, the average being 121.16%. It continues to benefit from the massive oil-rich Delaware and Midland basins.

Can It Retain the Momentum?

The answer is yes and here’s why we think so:

The 2018 buyouts of Energen Corporation and Ajax Resources helped Diamondback transform into one of the leading Permian Basin oil producers.

The company’s substantial ownership interest in its infrastructure spin-off — Rattler Midstream — provides the company with additional source of liquidity from its substantial assets in the Midland and Delaware basins.

Management recently announced an agreement whereby the company will acquire the smaller upstream player QEP Resources in an all-stock deal worth $2.2 billion. Post the transaction, it will add nearly 49,000 more acres to Diamondback’s Midland acreage in the Permian Basin where the company is already one of the top producers. Therefore, the QEP buyout is a strategic fit for the company, which will further strengthen its position in the United States’ hottest shale region of cheapest cost.

Management also informed that the company is purchasing lease interests and assets in Midland Basin from the privately held Guidon Operating LLC for approximately $850 million. The QEP Resources buyout combined with the acquisition of assets from Guidon Operating LLC will add to Diamondback’s total leasehold interests to above 276,000 net surface acres in the Midland Basin.

Both contracts will immediately increase Diamondback’s 2021 free cash flow per share, thereby resulting in annual savings of not less than $60-$80 million post the completion of the deal.

Additionally, this currently Zacks Rank #1 (Strong Buy) company boasts a healthy financial footing with $92 million in cash and cash equivalents and total debt to total capital of 34.6% as of Sep 30, 2020.

The stock’s brighter prospects for 2021 compared with 2020 can be gauged from its current-year Zacks Consensus Estimate for earnings, which is pegged at $4.85 per compared with the last year’s earnings estimate of $3.04.

Zacks Rank & Other Key Picks

Some other top-ranked players in the energy space are DCP Midstream Partners, LP (DCP - Free Report) , Plains Group Holdings, L.P. (PAGP - Free Report) and Altus Midstream Company (ALTM - Free Report) , each presently sporting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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