VNOM’s analyst recommendations

Viper Energy Partners (VNOM) is among the Wall Street analysts’ favorite MLPs (master limited partnerships) today. This royalty interest owner MLP formed by Diamondback Energy (FANG) to own and acquire crude oil and natural gas and assets in US shale plays—particularly in the Permian Basin—has a “buy” rating from 100% of analysts.

Notably, Mizhuo upgraded the partnership from “neutral” to “buy” in August 2017. Overall, the partnership has seen six rating updates since the beginning of this year, including four upgrades and two new coverage initiation with a “buy” rating.
Reading Viper Energy Partners’ Analyst Ratings

Peer Black Stone Minerals (BSM) has a “buy” rating from 83.3% of analysts as of September 28. Simmons First National recently cut VNOM’s target price to $20 from $22. VNOM’s average target price of $21.3 implies a 15% upside potential from current price levels.

Valuation analysis

Viper Energy was trading at a forward EV-to-EBITDA multiple of 12.8x as of September 28, 2017—lower than the historical average of 17.0x but higher than the peer median multiple of 7.4x.

Viper Energy’s current distribution yield of 7.1% is higher than the historical average of 5.4%. VNOM declared a distribution of $0.332 per unit in the second quarter, which represented a massive 76% YoY (year-over-year) growth over the same quarter in 2016.

Unlike other upstream companies, VNOM comes with no direct commodity price exposure as the partnership operates as a pure royalty interest owner, which benefits from production growth. The partnership has most assets in the prolific Permian Basin, a region that continues to experience strong drilling activity.

According to the recent rig report by Baker Hughes, the rig count in the Permian Region has risen to 386 as of September 22, compared with 264 by the end of last year.

In the next part, we’ll discuss the analyst ratings for Hoegh LNG Partners (HMLP).

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