With Viper Energy Inc (VNOM, Financial) experiencing a daily loss of -3.13% and a modest 3-month gain of 6.39%, investors are keenly observing its financial performance, particularly its Earnings Per Share (EPS) of 2.29. Amidst these fluctuations, the question arises: is Viper Energy modestly undervalued? This analysis delves into the valuation of VNOM, inviting readers to explore the underlying financial metrics that suggest its current market position.
Company Introduction
Viper Energy Inc was established by Diamondback Energy in 2014, focusing on mineral royalty interests in the prolific oil and natural gas properties of the Permian Basin. By the end of 2020, Viper Energy boasted 24,350 net royalty acres with a production rate of 26,551 barrels of oil equivalent per day. With a solid reserve base predominantly in oil, the company reported 99,392 thousand barrels of oil equivalent in proven reserves. The stock's current price of $30.3 per share is juxtaposed against a Fair Value (GF Value) of $37.65, indicating a potential undervaluation. This initial comparison sets the stage for a deeper valuation analysis.
Summarize GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If Viper Energy (VNOM, Financial)'s stock price is significantly below the GF Value Line, it suggests a higher potential for future returns. Currently, with a market cap of $2.60 billion and a price of $30.3 per share, Viper Energy appears modestly undervalued. This suggests that the long-term return of VNOM's stock could surpass its business growth, presenting an attractive opportunity for investors.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid the risk of permanent capital loss. Viper Energy's cash-to-debt ratio of 0.22, although lower than 67.34% of its peers in the Oil & Gas industry, still reflects a fair balance sheet. GuruFocus rates the company's financial strength as 5 out of 10, indicating a reasonable financial position.
Profitability and Growth
Profitable companies, especially those with consistent profitability over time, pose less investment risk. Viper Energy has maintained profitability for 7 out of the past 10 years. With an impressive operating margin of 77.06%, ranking higher than 97.27% of the industry, and a strong profitability rank of 8 out of 10, VNOM stands out as a robust investment option. Additionally, the company's 3-year average revenue growth rate is commendable, surpassing 85.24% of the industry, signaling a healthy growth trajectory.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to Weighted Average Cost of Capital (WACC) provides insight into a company's value creation. Viper Energy's ROIC of 19.92 indicates that it is generating cash flow well above its capital cost, reflected in its WACC of 10.02. This signifies that VNOM is creating substantial value for its shareholders.
Conclusion
In conclusion, Viper Energy (VNOM, Financial) is modestly undervalued. The company's fair financial condition, coupled with strong profitability and growth that outperforms a significant portion of its industry peers, presents a compelling case for investors. To delve deeper into Viper Energy's financials, interested parties can access a comprehensive 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
