Sitio Royalties (STR) PT Lowered to $27 at KeyBanc

KeyBanc analyst Tim Rezvan lowered the price target on Sitio Royalties (NYSE: STR) to $27.00 (from $29.00) while maintaining a Overweight rating.

The analyst commented, "We come away with mixed views on Sitio's 2Q earnings report and update. We acknowledge that steady-state activity in the Permian Basin persists and a modest decrease in line of sight wells may not be a negative harbinger of decreased activity, especially with a tick-up to 45 net seen by the end of July. We also see benefit in repurchasing shares amid periods of dislocation. Lastly, the reason leverage has ticked up is due to Sitio being able to find accretive bolt-ons. With that said, we do see some areas of concern. These include interest expense equal to $6.36/boe in 2Q, which hurts unit margins and weighs on FCF generation, and a NTM distribution yield of 5.2%, which trails cash payments public peers make. We reiterate our OW rating, but lower our PT to $27 as we await signs of deleveraging, which we believe can improve Sitio's equity currency for future accretive acquisitions."

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