FANG

We rate Diamondback Energy, Inc. (FANG) as a Reduce with a composite score of 46.7/100 at a current price of $172.09. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (71th percentile) and value (51th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (26th percentile) and momentum (32th percentile) tempers our overall conviction. We assign a Narrow Moat rating (48/100), Low uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Diamondback Energy, Inc. holds a top-quartile position (#0 of 50) within the Mining sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 46.7/100 places it at rank #2536 in our full 7,333-stock universe. With a $41.4B market capitalization, Diamondback Energy, Inc. operates at meaningful scale within the Mining sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 58%, though momentum at the 32th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 85% (+41.8pp vs sector) narrow to operating margins of 33% (+20.4pp vs sector) and net margins of 27.8%, yielding a gross-to-net conversion rate of 33%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $172.09, Diamondback Energy, Inc. is trading near fair value based on current fundamentals. Our value factor score of 51/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 12.4x (roughly in line with the sector median of 13.7x), EV/EBITDA of 13.9x (at a premium), P/B of 1.1x, P/S of 3.5x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Low uncertainty rating to Diamondback Energy, Inc.. The company exhibits strong financial stability with a beta of 1.14, conservative leverage (35% D/E), and a stability factor in the 71th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

We identify no major risk factors at this time. The company's stability factor sits at the 71th percentile with quality at the 44th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 85% provide a buffer against cost pressures; above-average stability (71th percentile) suggests predictable business dynamics; a 2.73% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Diamondback Energy, Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 8.8%, and the balance sheet is managed within acceptable parameters (D/E: 35%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Diamondback Energy, Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 2.73% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Diamondback Energy, Inc. receives a Reduce rating with a composite score of 46.7/100 (rank #2536 of 7,333). Our quantitative framework assigns a Narrow Moat (48/100, trend: stable), Low uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 45/100.

Our analysis does not support a constructive view on Diamondback Energy, Inc. at this time. The combination of the current quantitative profile, low uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.