Why Diamondback Energy Stock Dipped on Wednesday

Key Points

• A pundit shaved his price target on the oil and gas company's shares.

• He left his bullish recommendation intact, however.

• 10 stocks we like better than Diamondback Energy ›

Following along with an analyst's price target reduction, investors became slightly less bullish on Diamondback Energy's (NASDAQ: FANG) future on Hump Day. They traded out of the stock to leave it with a more than 5% loss that session. Other stocks did better, as the S&P 500 index closed with a 0.5% increase.

A $4 haircut

That morning, prognosticator Tim Rezvan, with KeyCorp's KeyBanc Capital Markets, made the move, lowering his Diamondback price target to $176 per share from the preceding level of $180. That wasn't enough of a cut to change the analyst's recommendation, apparently, as he maintained his overweight (buy) rating on the oil and gas company's equity.

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Image source: Getty Images.

Rezvan's change is based on Diamondback's revision of its estimate for natural gas prices, according to reports. The analyst also factored in the June acquisition of Sitio Royalties by Diamondback's publicly traded subsidiary Viper Energy. Concurrent with the announcement of the transaction, Viper raised its base dividend by 10%.

Viper bought Sitio in an all-cash deal valued at $4.1 billion; the purchase closed in mid-August. At closing, Viper revised its third-quarter production guidance, forecasting that average total production would be 104,000 to 110,000 barrels of oil equivalent per day.

Black gold

Diamondback/Viper might be feeling rather flush these days, as last month the parent company posted a nearly 50% year-over-year increase in revenue (to $3.68 billion) in its second quarter. Adjusted net income was down, but the company was still well in positive territory with a profit of $785 million.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Viper Energy. The Motley Fool has a disclosure policy.