Kimbell Royalty

Kimbell Royalty Partners LP receives a 3-star quantitative star rating, reflecting our opinion that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a 7% discount to our quantitative fair value estimate of $16.01 per share, which is reinforced by this estimate's low uncertainty rating.

The company's valuation metrics increase our fair value estimate. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. For example, the firm's enterprise value to market value ratio of 1.5 falls in the top 30% compared with peers globally. While highly leveraged firms can be risky, they can also be highly rewarding. This company's high enterprise value relative to its market value suggests that wise investments will yield outsize returns for investors. We believe this is a sign that shares could be cheap.

The firm's favorable dividend structure is an additional encouraging factor. Dividends represent a stable form of future cash flows returned to shareholders, reducing the perceived risk of a business. The firm's forward dividend yield of 11.0%, for example, falls in the top 10% globally. Expected dividend payments over the coming year relative to the current share price are favorable, which further promotes our favorable price/fair value ratio.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is undervalued, this outperformance had a negative impact on our valuation estimate.

With its quantitative economic moat rating of none, we do not expect this company to materially outearn its cost of capital in the long run. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.