Diamondback Energy Inc (NASDAQ:FANG) — This independent exploration and production company is centered primarily in the Permian Basin in West Texas and New Mexico. Standard & Poor’s Capital IQ retains its highest rating, a “five-star” strong buy opinion, on the stock with a 12-month target of $138.
They raised their price target by $11 in mid-February, reflecting a 12.5X multiple of price times estimated 2017 operating cash flow. They are optimistic on FANG’s reserve replacement potential (380% in 2016) and its financial strength. Diamondback’s Q4 production was almost 9% above consensus, and Q4 earnings per share of 90 cents beat the Capital IQ view by 37 cents.
S&P expects FANG to exceed its current record earnings of $2.24 per share (2014) in each of the next several years even if crude oil prices are lower than those in 2014. They note that a responsible forecaster, Bentek Energy, forecasts an average per barrel of about $54 in 2017.
Technically FANG stock is consolidating at $100 to $107 with a double top at $114 following an advance from the mid-$70s last year. The chart formation is of an ascending right triangle with the 50-day moving average at the mid-point of support about $103.
Since March, accumulation has been positive, and MACD issued a buy signal in late-March. A high-volume close above $107 could result in a successful run against the double top at $113-$114 and provide a trading target of $125. Therefore a purchase at $106 could achieve a trading return of over 17%.
Noting S&P’s 12-month target of $138, investors could have a greater benefit from a long–term investment in Diamondback Energy.
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