Diamondback Energy (FANG): Business Imperatives During Times Of Fear In The Stock Market
Diamondback Energy, Inc. (NASDAQ: FANG) has its headquarters in Midland, Texas, and is an independent crude oil and natural gas producer with operations typically situated in the Permian Basin, one of the United States American' most prolific oil-producing basins. With a market capitalization of $46.8 billion, Diamondback may be defined as a large-cap stock, a term which positions it as one of the largest oil and gas exploration and production (E&P) players in the market.
The company's business model is all about finding, developing, and purchasing onshore unconventional oil and gas reservoirs. Diamondback has grown its asset base manifold through organic development and strategic acquisitions year by year—most recently Endeavor, significantly contributing to being a part of the proven company reserves at 2.2 billion barrels of oil equivalent. The growth is testifying to Diamondback's storied exploration heritage and operating excellence in the Permian Basin.
Even on these stable core fundamentals, the FANG stocks have gotten thrashed the last few months. Off a 52-week high on July 17 of $214.50, the stock is down 27.2%. The stock price of FANG was down 12.4% the last three months, contrasted with the broad S&P 500 Index up 4.5% for the same three-month period. 52-week and YTD but FANG remains unchanged, once more lagging the S&P 500, 23.9% higher year-to-date and 23.1% YTD.
Technical indicators have also painted a bearish picture. FANG has stayed below the 50-day moving average since August, which shows short-term weakness. The big picture hasn't been much healthier, with the stock staying below its 200-day moving average since September, showing ongoing volatility and investor nervousness.
There were positives on that as well. Diamondback's shares gained 2% on Nov. 4 after the company announced its Q3 earnings release. While the company's adjusted EPS of $3.38 fell short of the analysts' estimate of $3.80, the company was able to post revenue beats at $2.6 billion compared to estimates of $2.5 billion. The revenue beat indicates steadiness in operations along with stable cash flow despite pressure on earnings.
To place that into perspective, Diamondback's peer in the same industry, Occidental Petroleum Corporation (OXY), has not done as well. OXY shares decline 22.9% YTD and 22% over the past 52 weeks, consistent with more desperate fighting to weather the uncertainty of the energy sector.
Above all, though, Wall Street is optimistic about Diamondback Energy's long-term future. Of the 27 that cover the company, the "Strong Buy" consensus is the most dominant opinion. The implied price target is $216.74, or an increase of nearly 39% above where it currently sits. Analysts believe Diamondback's operational profitability, asset-focused portfolio, and scale benefits in the Permian Basin are most significant themes to drive growth in the future.
Although poor near-term performance of the stock and macro externalities are negatively impacting Diamondback Energy, its fundamentals are good based on healthy reserves, positioning, and long-term coverage by analysts. FANG may be a longer-term oil and gas space-following play if overall market sentiment turns weak or when oil prices rise.
Disclaimer: At the time this was posted, Neha Panjwani was neither long nor short in the above stocks. This post is general use and purposes only. Click here to view Barchart Disclosure Policy.
