Diamondback Energy is one of the many small-to mid-cap oil producers. It has taken advantage of the oil boom in Texas’ Permian Basin along with the other companies, turning that basin into North America’s top oil-producing region. Currently, Diamondback’s production totals more than 130,000 barrels of oil equivalent each day.
While oil is usually a very profitable and stable investment, its prices collapsed last week. The WTI benchmark fell into negative numbers for the May futures contract for the first time in history. Presently it’s trading at just $14, lower by 73%. The main global benchmark, Brent, also dropped by 66%, currently trading at $20.
According to analysts, the sudden loss in demand due to the lockdowns in the response of pandemic is the main reason for such a downfall in oil prices. The oil industry suffered a significant blow. However, now is an excellent time to grab oil shares as the collapse has driven share prices down far below their recent peaks.
According to Scott Hanold, RBC’s analyst, Diamondback became one of few companies that have amassed a combination of quality assets, minerals ownership, strong economic growth, and water business. All of these help provide a competitive advantage.
Furthermore, the company announced a growth in the regular dividend in 2020, increasing it to 37.5 cents per share quarterly. That put the annualized rate at $1.50 per share. Meanwhile, the yield, at 4.2%, is more than double the average dividend yield found among S&P-listed stocks.
Diamondback also reported $1.104 billion in top-line revenue and $1.93 in earnings per share for the fourth quarter in 2019. It beat the analysts’ forecasts on both metrics and began 2020 with successful footing.
Hanold set his price target at $50, with a 38% upside potential for the shareholders. He thinks that Diamondback has one of the lowest cost structures in the basin, as well as a corporate cash flow break-even that is among the best in the industry.
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