Diamondback's Current Valuation Provides Little Upside In Williams Capital's View

Williams Capital’s Gabriele Sorbara believes Diamondback Energy Inc (NASDAQ: FANG) shares are at a valuation that offers little potential for upside for new investors, and it would be better to wait for a more attractive entry point.

Sorbara initiated coverage of the company with a Hold rating and price target of $105.

Well Positioned

The analyst believes the company is well positioned in the Permian Basin, with 86,000 net acres in the Midland Basin and 19,180 net acres in the Delaware Basin, specifically Reeves and Ward counties.

Related Link: PDC Energy To Acquire Acreage In Delaware Basin; Williams Capital Initiates At Buy

“Over the years, the Company has executed in the Midland Basin; however, its initial rig will be added to its recently acquired position in the Southern Delaware Basin late this year or early 2017, should commodity prices strengthen,” Sorbara mentioned.

Growth Outlook

The analyst estimates Diamondback Energy to have more than 2,100 net horizontal locations across its acreage. With downspacing, this inventory could potentially more than double.

“Further, in the coming quarters, we expect FANG to provide results from testing high-density near wellbore fracs, diversion agents, nano-surfactants and dissolvable plugs,” Sorbara stated.

The analyst believes the company would be able to deliver double digit growth in 2018 and beyond, with potential for generation of free cash flow. However, Sorbara also believes this potential is already reflected in the stock valuation.

Sorbara pointed out that Diamondback Energy has grown through acquisitions over the years, a trend that is likely to continue.

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