Credit Suisse Upgrades Sitio Royalties (STR) to Outperform, New Top Pick

Credit Suisse analyst Chris Baker upgraded Sitio Royalties (NASDAQ: STR) from Neutral to Outperform with a price target of $33.00 (from $32.00).

The analyst comments "Upgrading STR to Outperform. New Top Pick amongst Royalties… Attractive relative valuation, differentiated production growth, and better Hooks Ranch visibility. In January, Falcon Minerals (FLMN) and Desert Peak Minerals (Private) announced an all-stock merger, and recently rebranded the combined company as Sitio Royalties (STR). Since shareholders approved the merger on June 3rd, STR shares are down ~20%, underperforming mineral peers -5% and the XOP index -7%. While we acknowledge STR shares face some headwinds given potential sponsor sell-down risk, limited liquidity, and Hooks Ranch concentration risk (22.5% NRI), we now see an attractive entry point given: (1) attractive relative valuation: following recent underperformance, we see STR offering a 15.4%/15.2% 2022/2023 cash flow yield using current strip prices, or a ~2.5%/3.9% wider yield vs MNRL & VNOM at 13.0%/11.4% on average; (2) differentiated 2023 oil growth: while 2022 guidance isn’t expected for another 2-3 weeks, we forecast STR to generate mid-teens YoY oil growth in 2023, putting it well ahead of peers; and (3) improved Hooks Ranch visibility: Enverus shows COP moved a rig onto the 6-well Hamilton B-Hooks pad yesterday which now looks to be a late 2022 event vs our earlier expectations of early 2024 given the prior lawsuit filed by the landowner trying to block development."

For an analyst ratings summary and ratings history on Sitio Royalties click here. For more ratings news on Sitio Royalties click here.

Shares of Sitio Royalties closed at $26.99 yesterday.

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