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Site Royalties (New York Stock Exchange:STR) -3.8% in trading on Wednesday as Barclays initiates coverage with an underweight rating and a $26 price target, saying distribution performance is not attractive enough compared to exploration and production companies.
While E&P companies have demonstrated capital discipline and increased their cash profitability In recent years, Sitio's (WAS) cash yield does not stand out among its peers, according to Barclays analysts led by Betty Jiang, whose most conservative production forecast estimates a cash yield of 7.2% in both 2024 and 2025 under strip prices, largely measured in line with the respective average. for diversified, oil-weighted E&P of 6.9% and 7.4% despite greater uncertainty over production and cash flow outcomes.
Above-average leverage may also limit Sitio (STR)'s ability to conduct cash-rich transactions until debt is reduced to a more manageable level, Jiang says.
Sitio (STR) has committed to returning at least 65% of discretionary cash flow to shareholders, below Viper Energy's (VNOM) 75% payout ratio, due in part to a higher estimated leverage ratio by 1.6 times by the end of 2024, above that of Viper. and the average E&P of 0.7 times, due to recent cash-funded deals, Barclays analysts say.
