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Vital Energy (NYSE:VTLE) -0.9% in Friday’s trading as KeyBanc downgrades shares to Sector Weight from Overweight, even as shares trade at two-year lows, saying it cannot recommend buying the dip given the surprising setback following a promising deleveraging story after several 2023 acquisitions.
KeyBanc’s Tim Rezvan questions the price and all-cash structure behind Vital’s (VTLE) Point Energy acquisition, seeing a “big step back” in deleveraging for a company the analyst believes needs lower leverage to attract long-only sponsors.
An incremental 10K bbl/day of oil is “helpful but not transformative” to justify the deal, especially with less than five years of sub-$50/bbl WTI breakeven inventory post-closing, Rezvan says, adding that he sees “continuing LOE challenges exacerbated by this acquisition.”
“After updating our model, we are underwhelmed by the benefits of the deal, relative to the $820M cost and pro forma 63% debt/cap ratio,” Rezvan writes, adding that while hating “wishy-washy sellside analyst talk,” Vital (VTLE) has become a “‘show me’ story on deleveraging and cash opex normalization.”
