Benzinga | Feb 1, 2021 03:27PM EST

Scotiabank Believes Diamondback Energy Is 'Well-Positioned To Return To E&P Glory'

Despite outperforming the E&P sector from 2012 through 2017, Diamondback Energy Inc's (NASDAQ:FANG) relative performance has taken a significant hit since 2019 due to operational issues and investors favoring cash return business models, according to Scotiabank.

The Diamondback Energy Analyst: Paul Cheng initiated coverage of Diamondback Energy with a Sector Outperform rating and a price target of $84.

The Diamondback Energy Thesis: The company appears poised to regain its status as a "strong E&P stock in the coming months," Cheng said in the note.

"FANG now trades at a relatively discounted valuation despite the likelihood of a sharp free cash flow (FCF) inflection this year, an increasingly investor-friendly business model, and a well above average operational outlook going forward," he wrote.

"We also view the recently announced QEP/Guidon transactions favorably and thus see ample near- to medium-term catalyst potential between de-leveraging, incremental cash return, and successful integration," the analyst added.

These catalysts and a strong fundamental outlook should boost Diamondback Energy's position in the E&P sector, Cheng said.

FANG Price Action: Shares of Diamondback Energy had risen by 2.7% to $58.23 at the time of publication Monday.

(Photo: By Gary Stolz/United States Fish and Wildlife Service)