We came across a bullish thesis on LandBridge Company (LB) on Special Situation Investing’s Substack by Six Bravo. In this article we will summarize the bulls’ thesis on LB. LandBridge Company share was trading at $34.74 as of Sept 9.
A worker inspecting a state-of-the-art rig in the Permian Basin region.
LandBridge Company (LB) is a unique investment opportunity, holding around 220,000 acres in the Permian Basin, an area known for its rich oil and gas deposits. However, unlike similar companies, LandBridge focuses on infrastructure development rather than just traditional energy extraction. Since its IPO in June 2024, the company has made significant strides, leveraging its strategic land position to tackle two pressing infrastructure issues: produced water processing and digital infrastructure, specifically data centers.
The Permian Basin, straddling Texas and New Mexico, produces vast amounts of water alongside oil extraction. Texas allows the re-injection of this water, while New Mexico’s stricter regulations present a challenge. LandBridge’s land, located along the state border, is ideally positioned to exploit this regulatory arbitrage. With its partner, WaterBridge, the company already moves 1.8 million barrels of water daily across the border, creating a potential $200-300 million annual free cash flow opportunity. As the water-to-oil ratio in the Delaware Basin increases, this opportunity will only grow.
In addition to water processing, LandBridge is well-positioned to capitalize on the rapidly growing demand for data centers, which are essential for storing and processing data. The Permian Basin offers an ideal location for such facilities due to its abundant, low-cost energy and water resources necessary for cooling, along with remote land suitable for large-scale infrastructure. LandBridge plans to build a 1-gigawatt data center powered by a 250-megawatt solar farm and a gigawatt power plant, demonstrating its potential to become a digital infrastructure hub. With a 100-year lease already in place and partnerships with developers, the company is poised to generate substantial long-term revenue from data centers. Each facility could contribute $30-40 million annually, with plans for six centers already in motion.
LandBridge’s revenue potential is impressive. Projections suggest up to $300 million annually from water royalties and $30-40 million from each data center, in addition to ongoing revenues from oil, gas, and other infrastructure projects. Comparatively, Texas Pacific Land, a similar company with $600 million in revenue, has a market cap of $20 billion. Even a conservative estimate of LandBridge’s potential suggests a valuation of $10 billion, significantly higher than its current market cap of $2.43 billion.
While LandBridge’s growth story may not offer immediate returns, its long-term potential is compelling. With manageable debt, minimal operating costs, and substantial assets, the company represents a solid investment with a strong margin of safety. For those intrigued by LandBridge’s unique positioning and growth prospects, further research into the company’s operations, water production dynamics in the Permian Basin, and data center market trends is highly recommended.
LandBridge Company is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 15 hedge fund portfolios held LB at the end of the second quarter which was 0 in the previous quarter. While we acknowledge the potential of LB as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as LB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.