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    FANG · NMS · Energy

    Diamondback Energy, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 447.55

    Market price

    USD 192.42

    Implied upside

    +132.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 66.2% of revenue against depreciation of 23.6%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 447.55+132.6%
    Exit multiple
    USD 328.83+70.9%
    Market price
    USD 192.42

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    -1260316801-6301584000FY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 17.3bnUSD 20.1bnUSD 23.3bnUSD 27.0bnUSD 31.3bn+16.0%
    EBITUSD 8.5bnUSD 9.8bnUSD 11.4bnUSD 13.2bnUSD 15.3bn+16.0%
    NOPATUSD 6.9bnUSD 8.0bnUSD 9.2bnUSD 10.7bnUSD 12.4bn+16.0%
    Add depreciation & amortisationUSD 4.1bnUSD 4.7bnUSD 5.5bnUSD 6.4bnUSD 7.4bn+16.0%
    Less capital expenditureUSD -11.5bnUSD -13.3bnUSD -15.4bnUSD -17.9bnUSD -20.7bn+16.0%
    Less increase in working capitalUSD -191.9mUSD -222.6mUSD -258.2mUSD -299.6mUSD -347.5m+16.0%
    Free cashflow to firmUSD -696.2mUSD -807.6mUSD -936.7mUSD -1.1bnUSD -1.3bn-16.0%
    Discount factor0.96490.89830.83640.77870.7250-
    Present valueUSD -671.8mUSD -725.5mUSD -783.5mUSD -846.1mUSD -913.7m-8.0%
    Present Value Of The ForecastUSD -3.9bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.607Reported 0.414, pulled toward 1.0 (Blume)
    Cost of equity8.34%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 53.9bn78.4% of capital
    Total debtUSD 14.9bn21.6% of capital, book value as a proxy
    Tax rate19.1%Effective, capped at statutory
    WACC7.41%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 447.55

    103% of EV

    Forecast FCFF, final year
    USD -1.3bn
    Capex at depreciation, working capital in reinvestment
    USD 12.4bn
    Less reinvestment at g/ROIC (21.2% of NOPAT)
    USD -2.6bn
    Capitalised
    USD 9.8bn
    ROIC (reported)
    11.8%
    Terminal value, undiscounted
    USD 204.3bn
    Terminal value, discounted
    USD 148.1bn
    Enterprise value
    USD 144.2bn
    Less net debt
    USD 14.8bn
    Equity value
    USD 129.4bn

    Exit at 6.9x EBITDA

    Value per shareUSD 328.83

    104% of EV

    Terminal value, undiscounted
    USD 156.9bn
    Terminal value, discounted
    USD 113.8bn
    Enterprise value
    USD 109.8bn
    Less net debt
    USD 14.8bn
    Equity value
    USD 95.1bn

    Spread between methods: 31%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.41%702.35776.39875.381014.881226.71
    6.41%520.87558.73605.93666.57747.58
    7.41%401.98422.78447.56477.65515.10
    8.41%318.45330.24343.80359.64378.45
    9.41%256.82263.47270.90279.31288.93

    Outlined: this model. Green text: above today's price of 192.42. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year16.0%0.5%-15.5pp
    EBIT margin49.0%29.6%-19.3pp
    Discount rate7.4%11.0%+3.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.