Viper Energy, Inc. (VNOM): A Bull Case Theory

We came crossed a bullish thesis on Viper Energy, Inc. connected LLVI Capital’s Substack. In this article, we volition summarize the bulls’ thesis connected VNOM. Viper Energy, Inc.'s stock was trading astatine $37.63 arsenic of January 13th. VNOM’s trailing and guardant P/E were 15.49 and 55.25 respectively according to Yahoo Finance.

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Viper Energy Partners, present operating arsenic VNOM, represents a unique, Permian focused vigor royalty concern that generates exceptionally precocious currency travel with constricted operational risk. VNOM owns subsurface mineral rights crossed astir 86,000 nett royalty acres successful the Permian Basin and functions much similar an upstream superior supplier than a accepted producer, benefiting from accumulation volumes and commodity prices without bearing operating oregon superior costs.

This operation enables EBITDA margins supra 90% and afloat taxed escaped currency travel margins exceeding 70% adjacent successful little commodity terms environments. At astir $60 per barrel, VNOM offers a much than 10% cash-on-cash escaped currency travel yield, with an estimated in-place payback play of astir 10 to eleven years, supported by astir 7 years of proved reserves astatine existent accumulation rates. Importantly, this valuation understates the existent embedded value, arsenic lone a information of VNOM’s acreage is presently producing, leaving meaningful upside from aboriginal development, non-producing acreage, technological improvements, and commodity terms recovery.

VNOM maintains debased leverage astatine astir 1x nett indebtedness to EBITDA and covers involvement disbursal galore times over, giving it flexibility to compound worth done antagonistic cyclical mineral acquisitions, stock buybacks, and disciplined superior returns.

The institution has committed to returning astatine slightest 75% of currency disposable for organisation to shareholders done dividends and repurchases, translating into an astir 8% existent currency yield, portion retaining ample liquidity for growth. Its narration with sponsor Diamondback Energy provides a dependable pipeline of imaginable mineral dropdowns, reinforcing VNOM’s relation arsenic a earthy consolidator successful the Permian.

Despite executing good successful a challenging situation and achieving greater standard done the Sitio merger, VNOM trades astatine a valuation discount to comparable royalty businesses, peculiarly PrairieSky successful Canada. This disconnect, combined with beardown escaped currency travel procreation and declining stock number implicit time, creates a compelling agelong word compounding accidental with charismatic downside extortion and meaningful upside potential.

Previously, we covered a bullish thesis connected LandBridge Company (LB) by Six Bravo successful September 2024, which highlighted regulatory arbitrage successful produced water, agelong dated information halfway optionality, and infrastructure driven onshore monetization successful the Permian. LB’s banal terms has appreciated by astir 59.41% since our coverage. This is due to the fact that the thesis played retired arsenic investors began pricing successful agelong word infrastructure value. LLVI Capital shares a akin thesis connected Viper Energy but emphasizes currency yielding mineral royalties, superior returns, and near-term escaped currency travel compounding.