Diamondback Energy Surges 6% In Print Buildup; Reports Beat

Diamondback Energy (FANG) has reported solid results for the third quarter with its after-market earning report on November 2. FANG shares surged over 6% during day trading in the run-up to the release, and maintained these gains post-print.

Specifically, Q3 Non-GAAP EPS of $0.62 beat Street estimates by $0.26 mostly due to lower cash LOE costs that were better than modeled. Revenue of $720M dropped over 26% year-over-year, but still beat Street forecasts by $7.73M. Diamondback’s third quarter 2020 net loss was $1,113 million, or $7.05 per diluted share.

FANG reported average production of 287.3 MBOE/day, compared to 287.1 a year ago. There was also no change to the 2020 production or capital spending outlook.

Meanwhile, guidance for cash operating and DD&A costs were lowered by a combined 8% that implies an annual $40-45 million in savings. Cash spending of $281 million and capital spending of $206 million were pre-announced.

Given current strip commodity prices, FANG also reiterated its to spend at maintenance production levels and prioritize debt reduction with FCF generation.

“Diamondback continued our trend of cost reductions in the third quarter, with LOE and G&A remaining near all-time lows and capital costs per lateral foot continuing to decline to new records” stated Travis Stice, CEO of Diamondback.

“We are on track to meet our fourth quarter average production target of between 170,000 and 175,000 barrels of oil per day and expect this to be the baseline for our development plan in 2021. We expect to execute on this maintenance capital plan with 25% – 35% less capital than 2020 which implies a reinvestment ratio of approximately 70% at $40 WTI,” he added.

FANG previously announced it drilled 32 gross operated horizontal wells and turned 41 wells to production in 3Q20.

Following the report RBC Capital analyst Scott Hanold reiterated his FANG buy rating and $50 price target. “Not too many surprises because production, pricing, and capital was pre-announced but cash costs were 3% lower than expected.”

“Management highlighted that it is starting to see the benefits of high-graded drilling… We think this is a slight positive update and think FANG shares could outperform peers modestly” the analyst told investors on November 2. (See FANG stock analysis on TipRanks).

Overall, FANG shares have plunged 70% year-to-date, but the stock scores a bullish Strong Buy Street consensus with 10 recent buy ratings vs just 2 hold ratings. The average analyst price target indicates that 75% upside potential lies ahead.