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Why Viper Energy Partners Is Analysts’ Favorite Upstream Company

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Nov. 20 2020, Updated 4:26 p.m. ET

Analyst recommendations

Viper Energy Partners (VNOM), an upstream company that isn’t directly involved in E&P (exploration and production) activities and is dependent on royalty income from its mineral interests, is Wall Street analysts’ favorite upstream company. VNOM saw two rating upgrades last month. Citigroup and Stifel Nicolaus raised their recommendations to a “buy.” Now, 100% of analysts covering the stock rate it a “buy.” VNOM’s average target price of $41.60 implies a 7% upside potential from its current price.

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Why analysts are so bullish on VNOM

Analysts’ bullishness for VNOM could be attributed to the following factors:

  • strong production growth resulting from the acquisition of mineral acres in the Permian Basin and strong producer activity in the region
  • high operating margins, with VNOM having the highest operating margin among all Permian-focused upstream companies due to its minimal cash operating expenses (for details, read Why Viper Energy Partners Has Industry-Leading Margins)
  • high ROCE (return of capital employed) as a result of strong distribution growth in recent quarters
  • strong support from its sponsor Diamondback Energy (FANG) with a strong inventory of mineral acres, which are expected to drop down to VNOM

The recent rating upgrades could be attributed to Diamondback Energy’s deal with Energen (EGN). For details, read The Expected Synergies from the Diamondback-Energen Deal.

In the next part of this series, we’ll look at analysts’ ratings for Earthstone Energy (ESTE).

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