We came across a bullish thesis on Texas Pacific Land Corporation (NYSE:TPL) on Special Situation Investing’s Substack by Six Bravo. In this article, we will summarize the bulls’ thesis on TPL. Texas Pacific Land Corporation (NYSE:TPL)’s share was trading at $1107.43 as of Dec 30th. TPL’s trailing and forward P/E were 56.82 and 37.74 respectively according to Yahoo Finance.
A broad sunset view of a modern oil & natural gas facility in the Permian Basin.
Texas Pacific Land (NYSE:TPL) has experienced a whirlwind of developments in recent months, presenting a compelling narrative for its shareholders. The company recently completed its second consecutive quarter of acreage acquisitions, spending $286 million on approximately 7,490 net royalty acres primarily in the Midland Basin. These newly acquired assets, operated largely by Exxon Mobil and Diamondback Energy, boast current production of around 1,300 barrels of oil equivalent per day, with promising prospects for near-term development and production growth. Given that over 80% of the acquired acreage overlaps or is adjacent to existing TPL holdings, the acquisitions align strategically with the company’s portfolio, providing strong visibility into future cash flows. Management estimates these deals will yield a double-digit cash flow return at a conservative $70 oil price, potentially adding $45.5 million to TPL’s annual free cash flow.
The third-quarter results showcased the company’s operational strength, particularly in its water segment, which continues to flourish. TPL is on track to collect royalties on an estimated one billion barrels of water through 2024, matching last year’s record income of $100 million from this segment.
Moreover, TPL’s transition from the S&P 400 to the S&P 500 in late November marks a milestone, introducing passive investment tailwinds but also market volatility risks. Since joining the index, TPL’s stock price has fallen approximately 33%. While some attribute this to lower oil prices or index-related technical factors, these dynamics have not deterred long-term investors. In fact, the recent dip has been seen as a buying opportunity, underpinned by confidence in the company’s robust fundamentals and strategic acquisitions.
Texas Pacific Land Corporation (NYSE:TPL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held TPL at the end of the third quarter which was 21 in the previous quarter. While we acknowledge the risk and potential of TPL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.