Matador Resources Co: Initiate with a Buy - there's no need to Fret about Energy in 2027

Deutsche Bank initiates coverage of Matador Resources (MTDR) with a Buy rating. Even though MTDR will fund $1.5BN of 2H26 acquisitions with debt, we think its capital structure looks attractive on a total return basis. We like MTDR's free cash flow generation profile, expanding inventory of drilling locations with recently announced acquisitions, and its differentiated midstream asset. On a relative value basis, if MTDR's 6.50% Sr. Notes due 2032 currently trading at $97.875 and a YTW to 6.94%, compresses to SM's 7.00% Sr. Notes due 2032's YTW of 6.80% by the end of FY27, bondholders would have a total return of 9.56%, and 8.26% after adjusting for funding costs. We believe High Yield Energy looks like a good sector to own in FY27, with FY27 WTI forward curves calling for $76.65. We expect total leverage to increase to 2.05x from 1.82x prior to the acquisition, but given significant FCF generation in FY27 we believe MTDR will be able to reduce total leverage to 0.80x by the end of FY27