Analyst Actions: Diamondback Energy Target Raised $6, Keeps Outperform at Credit Suisse; Shrs Now Down 1%, Hit Yr Highs Earlier

Credit Suisse says: "Few Ways to Play the Northern Midland; Revising Estimates and Raising Target Price to $32 (from $26)"

Reiterate Outperform, Raise TP to $32. "We reiterate our Outperform rating on FANG and raise our target price to $32 (from $26) as we increase the value of the horizontal Wolfcamp inventory in our 'PD Plus' NAV estimate. We revised our 2013/14 EPS estimates by -11%/+3% to $1.59/$3.32 based on updated 2013 expense guidance and production estimates, and we introduce our 2015 estimate of $4.18.

Wolfcamp Moving North. While there are only a few data points in the hz Wolfcamp in the northern Midland Basin to date, they point to a significant oil resource play on the horizon. PXD's DL Hutt was only the second hz Wolfcamp well reported in Midland County, having IP'd at 1,693 boe/d (75% oil) with a reported 20-day rate of 1,510 boe/d. The first, drilled by private operator RSP Permian (Kemmer 4209H) flowed with a peak IP rate of 892 Boe/d and a 30-day rate of 428 Boe/d (90% oil) from a ~3,700' lateral. In early February, FANG which holds a 47% working interest in the Kemmer well reported cumulative production of 56 mboe over a four month period and estimated the EUR at 400-500 mboe."

Scarcity Value for Northern Midland Assets. "While it's early days for the hz Wolfcamp in the northern Midland Basin, we argue the play is shaping up similarly to the Utica and the Wattenberg in 2012, with near-term resource defining exploration activity and few ways to gain exposure. With 54k net acres in the Midland Basin, including 24k net in Midland, Ector and Upton Counties prospective for Wolfcamp shale, we anticipate continued outperformance for FANG shares."

Valuation. "FANG is trading at a 22% discount to our revised NAV estimate, vs. a 13% discount for the Credit Suisse SMID-cap E&P peer group. On multiples, FANG is trading 6.5x and 3.9x 2013E and 2014E EBITDA (unhedged at the futures strip) compared to peers at 6.4x and 4.6x, respectively."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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