Global energy demand is rising and at the heart of this revolution is the rapid rise of AI technology. Fueled by the insatiable electricity needs of sprawling data centers, AI is reshaping the energy landscape at unprecedented speed. Mizuho Research predicts that energy demand for data centers will skyrocket and triple by 2030 as AI applications expand their reach.
Meanwhile, Bank of America has spotted this growing trend and analyst Kalei Akamine has lit the fuse to buy two energy stocks that he thinks are poised to outperform market expectations.
To dive deeper, we turned to the TipRanks platform to discover the details of these BofA recommendations. Let’s explore the picks and insights driving Akamine’s bullish call.
Viper energy (VNOM)
The first stock we’ll look at here, Venom Energy, is a $10 billion-plus partnership company focused on owning, acquiring and operating high-production oil and natural gas properties in North America. The company partners with Diamondback, a major hydrocarbon production company, and collects royalties on the fossil fuel wealth produced on its land holdings. We should note here that Diamondback owns a significant stake in Viper.
Viper’s goal is to generate an ‘attractive return’ for its own investors, and to this end the company focuses on operating income and distributable profits. In support of this business, Viper had an ownership interest in 32,567 net royalty acres as of September 30 of this year. Viper didn’t rest there, however, and on October 1, the company completed the acquisition of several mineral and royalty-interest subsidiaries of Tumbleweed Royalty, a move that increased Viper’s footprint to 35,634 net royalty acres. Of that total, 19,227 net royalty acres were operated by Diamondback.
In total, Viper has access to more than 10,700 horizontally producing wells on its properties, along with an additional 1,125 view wells. Average production from this portfolio was 49,370 boe/d, up 2.4% from the previous year, and it was this production that supported Viper’s earnings and dividend payments.
In terms of financial results, we see that Viper generated total operating income of $209.6 million in Q3 24, the last reported period. This was $1.38 million better than expected, although it was down more than 28% year-over-year. Ultimately, Viper’s non-GAAP earnings were 49 cents per share, in line with forecasts.
After reporting these results, Viper announced a common stock dividend payment of 30 cents per share. This payment was supplemented with a variable dividend of 31 cents per share; together, the total annualized payment is $2.44 per share, yielding a forward yield of 4.5%. We should note that VNOM stock is up about 82.5% so far this year, which easily outpaces the NASDAQ index’s 30% gain since the beginning of the year.
Analyst Kalei Akamine outlines Bank of America’s view and is impressed by Viper’s ability to deliver outperformance, as well as its strong partnership with a major oil and gas producer. He writes about the company: “Unique to Viper is the backing it receives from a strong financial sponsor in Diamondback Energy (43% stake), the largest publicly traded oil producer in the Midland Basin. More than half of Viper’s mineral rights come from Diamondback-managed leases – and these are expected to deliver low single-digit oil production growth for more than a decade… Our purchase on VNOM reflects our belief that the relative outperformance will continue as VNOM’s production growth prospects improve the company versus other mineral peers.”
Akamine’s buy rating for this stock is complemented by his $64 price target, which indicates an 18% upside over one year. (To view Akamine’s track record, click here)
Overall, the Street is bullish, but price targets are out of sync with the stock’s performance. VNOM stock has a strong Buy consensus, based on seven unanimously positive analyst ratings. However, the $44.71 average price target for the stock implies a 17% one-year decline from the current trading price of $54.06. It will be interesting to see if analysts will raise their price targets or lower their ratings soon. (To see VNOM stock forecast)
Expand energy (EXE)
Expand was known as Chesapeake Energy until October 1 of this year and rebranded itself after merging with Southwestern Energy. The combined company became one of America’s largest natural gas producers, with headquarters in Oklahoma City and operations in some of the wealthiest natural gas producing regions in the US. These include the Haynesville Shale in Louisiana, the Marcellus Shale in northeastern Pennsylvania, and the Marcellus and Utica shale formations in West Virginia and Ohio. With its Appalachian operations, Expand has access to one of the world’s largest natural gas resources, the Marcellus Shale.
In addition to its large natural gas footprint, Expand is also well positioned to operate in the fast-growing LNG sector: liquefied natural gas. LNG has become an essential part of the global energy economy, making it possible to transport natural gas over long distances in economically useful quantities, at affordable prices and scalable deliveries. Expand describes itself as “ready” to participate in the U.S. LNG sector, being the first U.S. gas producer to certify two major production areas as responsibly sourced gas and the largest supplier to natural gas liquefaction facilities on the Gulf Coast. The company has the ability to supply approximately 1.5 to 1.8 bcfe/d of natural gas to these U.S. liquefaction facilities.
Since the merger and rebranding effort, Expand has announced its financial results for the third quarter of 24. This period ended on September 30, the day before the merger became effective, and therefore includes the operations of the former Chesapeake Energy. The company posted adjusted net income of $22 million, which equates to 16 cents per share. That was 22 cents better than expected and came in as a net profit rather than a loss. Expand is expected to publish its first post-merger report in February next year.
Bank of America’s Akamine follows this company and is particularly impressed by Expand’s large footprint in the US natural gas market. He notes that the merger action that led to Expand’s rebrand was the culmination of Chesapeake’s strong merger strategy and writes of the consolidated company: “Since its reinstatement in 2021, Chesapeake (now Expand) has been on a deal to reposition its commodity exposure . from oil and we are switching completely to natural gas. The Southwestern Merger of Equals is the fully developed version of this strategy. At 8 bcf/d net and 12 bcf/d gross, Expand represents 11-12% of total US supply, making it the face of an increasingly consolidated gas E&P landscape that we believe has increased its flexibility to respond to market signals . This will be tested this winter as the market looks for producer discipline to adapt to winter demand.”
These comments support the analyst’s Buy rating, while his $114 price target shows confidence in a 15% one-year upside potential.
Looking at the ratings breakdown, based on 8 Buys, 6 Holds, and 1 Sell, this stock has a consensus view of Moderate Buy. However, shares are selling for $98.96, and the average target price, $98.64, suggests the stock will remain within the range for now. (To see EXE Stock Prediction)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
