The market is about right about Diamondback's earning power. Better gas prices and modest production growth should cushion lower oil prices, but commodity risk limits the opportunity. My twelve-month target is $203.08 a share.
Key points
- $19.21 a share of normalized annual earnings supports today's price at my valuation.
- 2.5% oil growth in 2027 is achievable without another large acquisition.
- $203.08 a share is my twelve-month target; commodity risk keeps this a hold.
The call
The market is about right. At ten times normalized earnings, today's price requires roughly $78 a barrel of realized oil in 2027. My reverse valuation assumes 2.5% oil growth and a 45% operating margin, meaning profit before financing and tax. Oil remains the decisive source of earnings.
Oil dominates second-quarter sales ($ millions)Source: June 2026 10-Q, filed August 5, 2026; purchased-oil expense was $730 million.
I expect a modest gain, not an oil-price windfall. My 2027 forecast uses $80 oil and $1.75 per thousand cubic feet of gas. New pipeline access should help gas earnings while returning Middle Eastern supply weighs on oil. Strong annual stock performance argues against dismissing the company's operating improvements.
Valuation
| Driver | My estimate |
|---|
| 2027 oil production | 535,000 barrels/day |
| 2027 realized oil price | $80/barrel |
| 2027 normalized earnings | $20.31/share |
| Core earnings valuation | 9.5 times |
| Low-cost inventory premium | 0.5 times |
| October 2027 target | $203.08/share |
Ten times earnings balances durable drilling inventory against a business that cannot set its selling price; the inventory premium contributes about $10 a share.
My forecast allows $4.1 billion of 2027 capital spending and deducts earnings belonging to outside Viper owners.
At $70 oil, the same method produces roughly $153 a share, making the upside insufficient for a buy.
The oil price matters more than faster drillingAnalyst scenarios, October 9, 2026; 2027 realized oil price, all other assumptions unchanged.
Risks
- Oil supply could recover faster than expected; watch exports and inventory rebuilding through mid-2027.
- Pipeline relief could disappoint; watch realized gas prices rather than the national benchmark.
- Growth could consume the backlog of drilled but unfinished wells; watch completions outpacing drilling and rising spending.
What would change my mind
Sustained realized oil below $70 a barrel or a 2027 capital budget above $4.5 billion without higher oil output would invalidate my earnings forecast.