UBS: Viper Energy Could Strike Next Year

Viper Energy Partners LP VNOM reported better than expected earnings on October 24, with earnings per share of 24 cents versus consensus of 22 cents.

The Analyst

UBS' Shneur Gershuni upgraded the stock from Neutral to Buy and increased the price target from $19 to $27.

The Thesis

The analyst expects higher crude oil prices in 2018 and 2019 and an increase in Viper Energy Partners LP's oil and gas production. Gershuni increased his distribution growth expectations and now expects a 2017-21 DPU CAGR of 17 percent. (See Gershuni's track record here.) 

Viper Energy has a dividend yield of 6.2 percent, in line with peers, and above-average expected distribution growth, the analyst said. The company should be trading with a premium to its peers due to its position in the Permian basin and high growth profile, said Gershuni.

Viper Energy Partners LP is projected to grow through drop-downs from Diamondback Energy Inc FANG and through third-party acquisitions, the analyst said. 

The Price Action

Viper Energy Partners LP spiked almost 3 percent Tuesday. It's gained almost 50 percent since July, when it bottomed at $14.76.