Investors also are worried that the company is seeking a large acquisition that will slow its share repurchases even further. Diamondback has tried to calm those worries by reiterating its commitment to return 50% or more of its free cash flow through fixed and variable dividends rather than share buybacks. Since the beginning of the year, the company has spent more than $800 million to acquire more Permian acreage and to purchase the ownership interests it did not already own in Rattler Midstream.
Diamondback’s capital return plans for 2022 and 2023 imply the return of 58% and 65% of free cash flow to investors in the two years. Goldman Sachs analysts believe there is “potential for the company to increase its [free cash flow] allocation above its minimum threshold of 50% towards capital returns, which can serve as a catalyst for share outperformance.”
The analysts’ 12-month price target on the stock is $180, yielding a total return for shareholders of 44%. Risks to that forecast include costs, well results, commodity price volatility and government pronouncements.
Imperial Oil
Calgary-based Imperial Oil trades on the Toronto Exchange under the ticker IMO. The oil sands miner is controlled by Exxon Mobil Corp. (NYSE: XOM), which owns almost 70% of the company’s shares. The company has forecast production of 265,000 to 270,000 barrels a day for 2022, higher than the Goldman Sachs estimate of around 250,000 barrels. Imperial could surprise to the upside, the analysts commented, particularly in the second half of the year.
Imperial is planning a C$2.5 billion share buyback this year, financed either by a new bond issuance or a renewal of the company’s existing repurchase intentions. The analysts also noted the potential for a variable dividend that Diamondback’s rivals have adopted to spread the sudden windfalls of cash.
The analysts have a 12-month price target of C$79.00 on the stock and forecast a total return of 19% for the period. Risks to that forecast include commodity prices, refining margins and operational execution.
Originally posted at 24/7 Wall St.
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