With a slight daily decline of 1.75% and a modest 3-month gain of 0.99%, Diamondback Energy Inc (FANG, Financial) presents an intriguing case for valuation analysis. The company's robust Earnings Per Share (EPS) of 17.62 begs the question: is Diamondback Energy fairly valued? This article delves into the financials and market position of Diamondback Energy to determine its intrinsic value and investment potential.
Company Overview
Diamondback Energy Inc (FANG, Financial) is a prominent independent oil and gas producer, with its operations anchored in the Permian Basin of the United States. As of the end of 2022, the company boasted 2 billion barrels of proven oil equivalent reserves. Diamondback Energy's production averaged around 386,000 barrels per day in 2022, with a composition of 58% oil, 21% natural gas liquids, and 21% natural gas. Weighing the company's current stock price of $155.33 against the GF Value of $150.58 provides a pivotal starting point to evaluate its fair market value.
Understanding the GF Value
The GF Value is a proprietary metric that estimates the intrinsic value of a stock, taking into account historical trading multiples, an adjustment factor based on past performance and growth, and future business performance projections. If Diamondback Energy's stock price is significantly higher than the GF Value Line, it could be overvalued, potentially leading to lower future returns. Conversely, a price well below the line might indicate a stock that is undervalued and poised for better returns. At a market cap of $27.80 billion and a current price of $155.33 per share, Diamondback Energy appears to be trading at a fair value.
Given that Diamondback Energy is fairly valued, its stock's long-term return is likely to be commensurate with the company's business growth rate.
Financial Strength
Assessing the financial strength of a company is crucial prior to investing. Diamondback Energy's cash-to-debt ratio stands at 0.13, which is lower than 76.36% of its peers in the Oil & Gas industry. This places Diamondback Energy's overall financial strength at a fair rating of 6 out of 10. Below is a visual representation of the company's debt and cash over recent years.
Profitability and Growth
Investing in profitable companies, especially those with a track record of consistent profitability, poses less risk. Diamondback Energy has shown profitability for 7 out of the past 10 years. With a revenue of $8.10 billion and an operating margin of 57.01%, the company ranks higher than 95.21% of its industry counterparts. The profitability of Diamondback Energy is robust, with a rank of 8 out of 10.
Growth is a pivotal factor in valuation. Diamondback Energy's 3-year average revenue growth rate is superior to 83.06% of companies in the Oil & Gas industry. Furthermore, its 3-year average EBITDA growth rate of 50.1% ranks higher than 83.15% of its industry peers, indicating a promising growth trajectory.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) offers insight into its profitability relative to the capital invested. Diamondback Energy's ROIC over the past 12 months stands at 14.3, outperforming its WACC of 6.87, signaling value creation for shareholders.
Conclusion
In summary, Diamondback Energy (FANG, Financial) is currently trading at a fair value. The company's financial condition is fair, and its profitability is strong. Its growth surpasses 83.15% of companies in the Oil & Gas industry. For an in-depth look at Diamondback Energy's financials, investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
