On Tuesday, Truist Securities initiated coverage on Diversified Energy Company (NYSE: DEC) with a Buy rating and a price target set at $18.00. The firm highlighted the natural gas company's strong performance in shareholder returns and its well-hedged business strategy. Despite being a newcomer to the New York Stock Exchange as of last December, Diversified Energy is recognized by U.S. investors who focus on the energy sector.
The company's current dual listing on the London Stock Exchange and the lack of extensive analyst coverage were noted as factors that might offer a favorable point of entry for investors. Truist Securities pointed out the company's high free cash flow yield, approximately 8% fixed dividend, and the anticipation of its addition to the Russell 2000 index on July 1 as key positive attributes.
Diversified Energy's lower base production decline rate, which stands at around 10% year-over-year compared to its peers' 30-50%, was emphasized as a competitive advantage. This is attributed to the company's older vintage producing inventory and its operated workover program, which contrasts with the high-decline drilling and completion activities other companies rely on for growth.
Looking ahead, the firm noted Diversified Energy's history of making strategic acquisitions and expects that it will continue to be active in the mergers and acquisitions landscape, taking advantage of opportunities presented by the current wave of non-core asset divestitures in the exploration and production space.
In other recent news, Diversified Energy Company has announced its impending inclusion in the Russell 2000® Index, marking a significant milestone for the company. This development follows robust first-quarter results and a recent listing on the New York Stock Exchange.
The company's CEO, Rusty Hutson, Jr., expects this move to increase the company's visibility in the U.S. investment community, potentially expanding its investor base and enhancing stock trading liquidity.
The Russell 2000® Index, managed by FTSE Russell, is part of the annual Russell US Indexes reconstitution and captures the 4,000 largest US stocks by market capitalization. Diversified's inclusion in the index aligns with its growth and value style indexes, and guarantees its place in the small-cap Russell 2000® Index.
These indexes are widely used by investment managers and institutional investors for index funds, with approximately $10.5 trillion in assets benchmarked against the Russell US indexes as of December 2023.
InvestingPro Insights
As Diversified Energy Company (NYSE: DEC) garners attention with its strategic positioning and favorable analyst coverage, understanding the financial metrics and performance trends can provide a deeper insight into its potential. According to InvestingPro data, Diversified Energy boasts a compelling P/E ratio of 0.85 as of the last twelve months ending Q4 2023, indicating a potentially undervalued stock given the industry standards. The company's robust dividend yield of 5.97% as of mid-2023 underscores its commitment to returning value to shareholders, which aligns with the company's history of consistent dividend payments over the past 8 years, an InvestingPro Tip that further solidifies its reputation as a reliable income stock.
Moreover, the impressive three-month price total return of 22.74% reflects a strong short-term performance, suggesting that investors have been responding positively to the company's recent moves. For those considering adding DEC to their portfolio, there are additional InvestingPro Tips available that can provide further guidance, including insights on the company's profitability and financial health. With the use of coupon code PRONEWS24, investors can access these valuable tips and gain an additional 10% off a yearly or biyearly Pro and Pro+ subscription on InvestingPro.
For a comprehensive analysis and more exclusive insights, investors can explore the full range of InvestingPro Tips, with several additional tips listed to help make informed decisions on Diversified Energy Company.
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