"Although the company has one of the strongest drilling inventories in the Permian Basin and significant balance sheet strength and flexibility with which to develop it, valuation appears stretched to us at this juncture," analysts said.
While analysts see an upside to the name over the next 12-18 months, they do not see enough to give the company an "outperform" rating, according to the note.
Shares of Diamondback Energy closed down today 1.55% to $76.46.
The Texas-based company is an independent oil and natural gas company.
Separately, TheStreet Ratings team rates DIAMONDBACK ENERGY INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate DIAMONDBACK ENERGY INC (FANG) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 38.6%. Since the same quarter one year prior, revenues slightly increased by 3.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has increased to $99.14 million or 38.72% when compared to the same quarter last year. In addition, DIAMONDBACK ENERGY INC has also vastly surpassed the industry average cash flow growth rate of -53.17%.
- The current debt-to-equity ratio, 0.32, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that FANG's debt-to-equity ratio is low, the quick ratio, which is currently 0.63, displays a potential problem in covering short-term cash needs.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- The gross profit margin for DIAMONDBACK ENERGY INC is rather high; currently it is at 68.56%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.76% trails the industry average.
- You can view the full analysis from the report here: FANG Ratings Report