Kimbell Royalty (KRP): A Strong Buy Despite Near-Term Volatility

When it comes to value investing in the energy sector, Kimbell Royalty Partners (KRP) has long been a name that commands attention. Despite a recent earnings miss in June 2025, the company's fundamentals, coupled with a favorable Zacks Earnings Surprise Prediction (ESP) and a compelling Wall Street price target consensus, make it a compelling case for strategic entry ahead of its August earnings release. Let's break down why this is a stock worth watching—and why the near-term volatility could be your opportunity.

Earnings Momentum: A Tale of Two Quarters

Kimbell's June 2025 earnings report was a mixed bag. The company missed estimates with an EPS of $0.02 (vs. $0.14 expected), a -85.71% surprise. However, this was a stark contrast to the previous quarter, where KRP exceeded estimates by 33.33%. The key takeaway? Earnings momentum isn't dead—it's just cyclical.

What's encouraging is that KRP's revenue beat of 6.51% ($86.55M vs. $76.57M YoY) shows resilience in its top line. The company also reaffirmed its full-year guidance, citing strong development prospects and a focus on accretive M&A under $500M. With a conservative balance sheet (1.6x net debt/EBITDA) and $163M in undrawn credit capacity, KRP has the financial flexibility to weather short-term headwinds.

Zacks Earnings ESP: A Green Light for a Beat

The Zacks Earnings ESP for KRP's August 7, 2025, earnings release is a robust +68.29%, signaling a high probability of beating the current consensus EPS of $0.09. This metric compares the Most Accurate Estimate (which factors in recent revisions) to the Zacks Consensus Estimate. A positive ESP like this is a strong indicator that KRP's management is likely to deliver a surprise.

Why does this matter? Because earnings surprises drive stock price momentum. KRP's Zacks Rank #2 (Buy) further reinforces this, as it's based on favorable revisions to earnings estimates. Even though the June miss was jarring, the broader trend of two out of four quarters beating EPS estimates suggests that the company's operational discipline and asset quality are still intact.

Wall Street Price Targets: A Consensus of Caution and Opportunity

The Wall Street price target consensus for KRP is a $17.40 average, with a range from $12 to $24. While the “Hold” rating from five analysts might seem lukewarm, the spread in targets tells a different story. The high of $24 (a 65% upside from the current price of $14.59) reflects optimism about KRP's long-term value, particularly its 10.3% annualized yield and a robust inventory of 131,000 gross wells.

Notably, TD Cowen and Texas Capital Securities have both set $24 price targets, citing KRP's strategic M&A focus and operational efficiency. Meanwhile, the low of $12 from Bank of America Securities seems overly pessimistic, especially given KRP's 17% U.S. land rig market share and its ability to add rigs in the Permian and Haynesville basins.

Strategic Entry Point: Why Now?

The current stock price of $14.59 is trading at a discount to the $17.40 consensus target, offering a 19% potential upside. For value-oriented investors, this is a compelling entry point, especially considering:
1. Debt Reduction: KRP has already redeemed 50% of its Series A preferred units and has $163M in undrawn capacity.
2. Operational Resilience: The company's rig count fell by only 2% in Q2 2025, outperforming the 7% industry decline.
3. Dividend Attraction: A 10.3% yield (fully return of capital) is a rare gem in today's market, especially for a company with KRP's balance sheet strength.

Risks to Consider

No investment is without risk. KRP's June miss highlights the volatility of the energy sector, particularly in the Permian Basin, where oil production could face headwinds. Additionally, the company's focus on M&A under $500M means execution risks could impact growth. However, these risks are mitigated by KRP's conservative leverage and its track record of disciplined capital allocation.

Final Take

Kimbell Royalty is a classic case of a company with strong fundamentals being unfairly punished by short-term volatility. The Zacks ESP and Rank suggest a near-term earnings beat is likely, while the Wall Street price target consensus hints at a path to $17.40. For investors with a 6-12 month horizon, this is a stock to consider buying on dips, especially ahead of the August earnings release.

In a market that often overreacts to quarterly misses, KRP's long-term story remains intact. If you're looking for a high-conviction play in the energy sector, this is the time to act.