Chevron agreement puts Texas Pacific Land’s water business in focus

Texas Pacific Land (TPL) has drawn fresh attention after agreeing to provide land and brackish water resources to Chevron for Project Kilby, a large power generation facility tied to a customer data center in Reeves County, Texas.

The deal gives Texas Pacific Land cash consideration and exclusive rights to source aquifer-derived water for the project. It also aligns with the company’s focus on responsible water development and reuse solutions in the Permian Basin.

Texas Pacific Land’s recent agreement with Chevron comes as the stock shows mixed momentum, with a 7 day share price return of 6.51% but a 90 day share price return down 27.71%, while the 3 year total shareholder return of 170.12% and 5 year total shareholder return of 125.56% reflect a very strong longer term record.

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With Texas Pacific Land trading at $377.56 against an analyst price target of $445.00 and a model-based intrinsic value that implies a premium, investors have to ask whether there is real value left or whether the market is already pricing in future growth.

Most Popular Narrative: 15.2% Undervalued

Compared with Texas Pacific Land's last close at $377.56, the most followed narrative points to a fair value of $445, built on specific revenue, margin and discount rate assumptions.

The analysts have a consensus price target of $445.0 for Texas Pacific Land based on their expectations of its future earnings growth, profit margins and other risk factors.

However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $639.0, and the most bearish reporting a price target of just $251.0.

Curious what justifies that gap between bullish and bearish views? The narrative leans on compounded revenue growth, expanding margins and a rich future earnings multiple that is usually reserved for faster growing sectors.

Result: Fair Value of $445 (UNDERVALUED)

However, Texas Pacific Land's reliance on Permian oil royalties and increasing regulatory attention on water usage could challenge those optimistic assumptions if conditions become less favorable.

Another View: What Texas Pacific Land’s P/E Is Telling You

While analyst narratives frame Texas Pacific Land as 15.2% undervalued, the current P/E of 51.7x paints a very different picture. It sits well above both the US Oil and Gas industry average of 12.9x and a fair ratio of 21.3x, which implies a wide valuation gap that could matter if sentiment changes.

For investors, that raises a simple question: is this a premium that feels comfortable to carry, or a signal to demand stronger evidence that Texas Pacific Land can keep justifying it over time?

Next Steps

Mixed signals around Texas Pacific Land can leave investors split, so it makes sense to move quickly, review the full picture, and weigh both sides with 2 key rewards and 1 important warning sign

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.