Investors should buy Diamondback Energy, a top Permian Basin oil producer, as the U.S. struggles to meet demand, according to KeyBanc. Analyst Tim Rezvan initiated coverage of Diamondback Energy with an overweight rating. He also slapped a $163 per share price target on the stock, implying upside of roughly 25% from Monday’s close. “Fears of demand impairment from China lockdowns miss the forest for the trees – THE U.S. IS THE LARGEST OIL CONSUMING NATION AND IS SIGNIFICANTLY UNDERSUPPLIED,” Rezvan wrote in a Monday note. Shares of Diamondback rose roughly 21% this year on the back of spiking oil and gas prices, and the analyst expects they have further to climb as the U.S. deals with a 15% shortfall in oil, gas and distillate from the 2015 to 2019 levels. Rezvan also pointed to the the company’s deep inventory and a healthy balance sheet for the overweight rating, as well as Diamondback’s straightforward manufacturing model and its ownership of Viper Energy, a royalty subsidiary that boosts revenue for the company. “Diamondback has unparalleled drilling economics from its ownership of royalties via Viper Energy Partners. The balance sheet is now right-sized following two large acquisitions in 2020. And we see a long runway of core inventory across both flanks of the Permian,” he said. “Given the Company’s scale and drilling consistency in the Midland Basin, amid uneven results from peers, we disagree with the decision to shun growth, but we still see value vs. large cap peers and believe outsized dividends will attract incremental income investors,” Rezvan added. —CNBC’s Michael Bloom contributed to this report.
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