Steven Miller on SA: Texas Pacific Land Trust: Review Of The Quarter And Ruminations About The Future

Good read here.  The article includes a good synopsis of recent price and trust performance along with some practical thoughts about the future.

Steven is still long but isn’t optimistic about near term prices due to a forecast flattening earnings and overdone investor optimism.  Miller does seem positive about the long term trajectory of TPL.

The water business is new and growing; it already contributes 18.1% of the revenue. How long can the growth continue? The Permian Basin Oil & Gas Magazine reported last May that producers are able to satisfy most drilling requirements with local uses of water. “That and the influx of water treatment companies have made the market ‘brutally competitive.’” The Trust has managed to thrive in that competitive environment to date, but it may not have a large moat.

Projecting a stock price remains quite speculative. Given the increased focus investors have on cash flow and the projected fall in revenues, I do not expect the stock price to rise much from its current point. On the other hand, the pipelines are coming. Management is proactive. The Trust will continue buying back shares, per its charter. Management is doing something interesting with selling and buying land. The Trust remains a favorite among far-sighted investors. All these factors will keep the stock from sinking too far. Taking into account both the short-term bears and the long-term bulls, I project the stock to move sideways in a channel between $500 and $600 per sub-share (the Trust’s unique name for “shares”) for the next two quarters.

Revenues for the next quarter are projected to drop. A corresponding drop in stock price is entirely possible, but long-term investors will likely use any opportunity to buy shares. The Trust will continue to buy back shares as well. Therefore, barring any catalyst, I am looking for the stock to trade in a range of $500 to $600 for the next two quarters. Traders could well find some nice opportunities in that price range. Should management have another surprise announcement, the stock could well soar again far beyond that range.