Viper Energy stock surges after bullish analyst ratings

In the United States, Viper Energy, a unique oil and natural gas stock, has seen impressive gains throughout 2024, increasing by 71% this year alone. This growth has attracted significant attention from Wall Street analysts, with Goldman Sachs and Bank of America both initiating coverage with favorable ratings. Goldman Sachs gave the stock a buy rating and set a price target of $70, indicating a potential upside of 29% from its recent close of $54.11. Meanwhile, Bank of America also rated the stock as a buy, suggesting an 18% return with a target price of $64. Viper Energy operates differently from traditional oil and gas exploration and production companies; it does not produce crude oil itself but instead owns mineral interests in the Permian Basin. The company primarily earns revenue through royalties from operators who extract oil and gas from its leased land. As a subsidiary of Diamondback Energy, Viper benefits from a close relationship with its parent company, which operates a significant portion of the leases from which Viper derives its rights. This affiliation distinguishes Viper from its competitors, many of which lack production growth visibility. The business model of Viper Energy is noteworthy because it has no capital expenditures or operational costs beyond general and administrative expenses. Such a lean structure allows Viper to offer its shareholders dividends, protected as long as crude oil prices remain above $30 per barrel, according to analysts at Goldman Sachs. In their analysis, they highlighted Viper's ability to convert a significant portion of its earnings into free cash flow, as the company often manages to turn 80% of its earnings before interest, taxes, depreciation, and amortization into free cash flow, vastly outpacing traditional companies in the sector. Overall, Viper has committed a substantial portion of its available cash—75%—to returning value to shareholders through dividends and share buybacks. With expectations of oil production growth sourced from Diamondback leases over the next decade, the outlook remains positive for Viper Energy, positioning it uniquely against both exploration companies and other royalty firms. The combination of its successful business model and analyst endorsements makes Viper Energy a compelling investment consideration in the current energy market landscape.