Oil prices (CLG24) are once again on the upswing, pushed higher by a recent surge in attacks on ships passing through the Red Sea. This caps off a generally tepid performance for the energy sector this year, as the S&P 500 Energy Sector SPDR (XLE) has advanced just 1.6% in 2023 - significantly lagging the broader equities market.
However, now may be a prime opportunity to scoop up top-quality oil stocks, and particularly those that offer a high dividend yield - like Kimbell Royalty Partners (KRP), for example. This tax-advantaged version of a Master Limited Partnership (MLP) has a unanimous “strong buy” rating from Wall Street, offers above-average EPS growth next fiscal year, and the stock is projected to rally significantly over the next 12 months. Here's what investors should know about this high-yield energy stock.
KRP's 2023 Performance
Kimbell Royalty Partners (KRP) isn't your run-of-the-mill oil drilling company — it combines aspects of an MLP with a royalty trust, allowing investors to tap into direct mineral ownership in more than 127,000 wells across approximately 17 million gross acres. KRP has a $1.4 billion market cap, and holds mineral and royalty interests across major U.S. oil and natural gas properties, including the Permian Basin, Eagle Ford, and Bakken Shale, amongst others.
As a mineral and royalty interest company, KRP grabs oil & gas interests in major shale basins, raking in passive income without the exploration risk or expense. However, the company is a C-corp for taxation purposes, unlike traditional MLPs - which simplifies the year-end accounting for shareholders.
KRP shares have largely tracked weakness in the broader energy sector, off by about 2% on a YTD basis.
In Q3 2023, the company reported revenue of $67.2 million, a 29% YoY increase, while EPS checked in at $0.19. The quarterly results fell short of Wall Street's expectations, but Kimbell raised its Q4 production guidance. In September, in fact, KRP closed its biggest acquisition yet, snagging mineral and royalty assets in the Permian and Mid-Continent from a private seller for $455 million, and providing an instant boost to production numbers.
Plus, the company hiked its quarterly dividend by 31% to $0.51 per share. KRP now boasts a forward dividend yield of 13.28%, well above the 3.5% median for energy sector stocks.
Upbeat Growth Projections
Looking ahead, Wall Street is targeting forward revenue growth of 38% for KRP, along with 35.6% EBITDA growth. Not only are these growth projections well above energy sector medians, they're also north of KRP's own 5-year averages - suggesting the stock is well-positioned for growth in the quarters ahead.
However, considering its high yield and outsized growth forecasts, Kimbell stock isn't too expensive at current levels. The stock's P/E ratio of 12.07 and price/book multiple of 1.63 are right in line with its industry peers.
Analysts' Consensus: KRP is a Strong Buy
Kimbell Royalty Partners is getting some serious love from all five analysts covering the stock, who have unanimously deemed the shares a “strong buy.” The group has set an average 12-month price target of $20.60 for KRP, hinting at expected 33% upside from current levels.
In conclusion, Kimbell Royalty Partners (KRP) emerges as a compelling investment choice with substantial upside potential and strong investment appeal. With unanimous “strong buy” ratings from analysts, plenty of upside potential expected for the share price, and a track record of paying back shareholders, KRP stands out as an attractive pick for both growth and income investors in the energy space.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
