What happened

Shares of Diamondback Energy (NASDAQ:FANG) tumbled 13.8% in October, according to data provided by S&P Global Market Intelligence. Weighing on the oil stock was its production report and a barrage of analyst commentary. 

So what

After shutting-in some of its production in the second quarter and stopping its well completion activities due to crashing crude oil prices, Diamondback Energy started ramping back up during the third quarter.

As a result, the company reported last month that it produced an average of 287,300 barrels of oil equivalent per day (BOE/D) during the period. It expected to produce roughly that same amount during the fourth quarter (between 280,000 and 290,000 BOE/D), giving it a full-year average of 290,000 to 305,000 BOE/D.

The company also said that it expects to maintain its fourth-quarter production rate next year while spending less than the $1.8 billion to $1.9 billion it anticipates investing this year. 

Two oil pumps with a bright sun in the background.

Image source: Getty Images.

Analysts weren't totally in love with this outlook. As a result, Citigroup lowered its price target on Diamondback from $53 to $46 a share as the company's 2021 production forecast came in below the bank's expectations. KeyBank also reduced its price target on Diamondback, cutting it from $72 to $62 due to its below-consensus third-quarter output and higher-than-expected capital spending. 

Meanwhile, several of Diamondback Energy's peers announced merger agreements last month, fueling the belief that the wave would continue. Morgan Stanley thinks Diamondback could benefit from greater scale as a potential acquirer, with the bank suggesting that Cimarex Energy (NYSE:XEC) would be a good fit. But Diamondback Energy seemed to throw some cold water on that idea when it reported its third-quarter results in early November. CEO Travis Stice said on the accompanying conference call that "we do not need to increase our scale to further lower costs." 

Now what

Analysts are starting to become less enamored with Diamondback Energy. Its production and outlook came in below their expectations, and now it seems unlikely to join the consolidation wave. If the company continues to disappoint investors, causing additional price target reductions and downgrades, its shares could underperform rivals even if oil prices recover.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.