Breaking Down Sitio Royalties Corp. (STR) Financial Health: Key Insights for Investors

You're looking at Sitio Royalties Corp. (STR) right now, and the biggest factor isn't just their latest royalty check; it's the seismic shift from the pending merger with Viper Energy, Inc. The company's Q2 2025 financial health showed a sequential dip, with consolidated net income coming in at $14.5 million, which is a clear sign of the earnings pressure analysts have been watching. Still, this is a royalty business, meaning their core model is defintely resilient, and they continued to return capital, with a Q2 total of $0.42 per share to shareholders through dividends and buybacks.

The real question for you, the investor, is how this merger-expected to close in Q3 2025-will integrate with the existing balance sheet, which showed $1.1 billion in total debt as of June 30, 2025. The near-term opportunity is the creation of a larger, more diversified entity, but you also have to map the risk that operator spending cuts could further pressure royalty cash flows in a volatile commodity market. We need to look past the headline numbers and see what the combined entity's free cash flow profile really looks like.

Revenue Analysis

You're looking for a clear picture of Sitio Royalties Corp. (STR)'s revenue engine, especially with the 2025 merger news hanging in the air. The direct takeaway is that Sitio Royalties Corp. delivered a strong start to the year, posting first-quarter revenue of $163.5 million, but the near-term revenue trajectory is now complicated by the pending acquisition by Viper Energy, Inc.. This transaction is the most significant factor overriding any previous long-term revenue projections.

Understanding Sitio Royalties Corp.'s Revenue Streams

Sitio Royalties Corp. is a mineral and royalty interest company, meaning its revenue is purely derived from non-cost-bearing royalty payments on the oil, natural gas, and natural gas liquids (NGLs) produced by operators on its acreage. This model is defintely a high-margin one, as they don't carry the direct operating costs of drilling and production, offering a natural hedge against inflation.

The revenue breakdown is tied directly to the price and volume of the underlying commodities. For the first quarter of 2025, the company's average total production was 42.1 thousand barrels of oil equivalent per day (MBoe/d). This production comes from a geographically diverse, high-quality portfolio of basins across the United States, which helps to mitigate basin-specific operational risk. You can review the company's strategic focus in detail here: Mission Statement, Vision, & Core Values of Sitio Royalties Corp. (STR).

• Permian Basin: The largest revenue contributor, spanning West Texas and southeastern New Mexico.
• Eagle Ford Basin: Provides a strong base of production in South Texas.
• DJ Basin: A key growth area in Northeast Colorado and Southeast Wyoming.
• Williston Basin (Bakken): Contributes to diversification in North Dakota.

2025 Revenue Growth and Segment Performance

Sitio Royalties Corp. saw robust year-over-year growth in the first quarter of 2025, with revenue climbing 8.0% compared to the first quarter of 2024. This increase was driven by strong production volumes from both legacy assets and recent acquisitions, reflecting solid operator activity on their mineral interests. The company's first-quarter production of 18.9 MBbls/d of oil exceeded the midpoint of their full-year guidance, which is a great sign of asset quality.

Here's the quick math on the first half of 2025. While Q1 revenue was strong, analyst consensus for the full fiscal year 2025 revenue is around $578 million. However, the second quarter showed a softening in results, with net income dropping to $14.5 million and Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) at $125.4 million. This dip reflects lower realized commodity prices in Q2 2025 compared to Q1, which is a constant risk in this sector.

Impact of the Viper Energy Merger

The most significant change to the revenue outlook is the merger with Viper Energy, Inc., which was approved by stockholders and expected to close in the third quarter of 2025. This deal immediately changes the analysis from a standalone revenue projection to an integration risk/opportunity. Following the announcement, Sitio Royalties Corp. discontinued providing guidance and a long-term outlook, which is standard practice but limits visibility for investors. The focus shifts to the combined entity's ability to maximize returns from the merged asset base, which is heavily concentrated in the Permian Basin.

Next Step: Portfolio Managers should model the combined entity's 2026 revenue using the pro-forma production volumes and current commodity strip pricing by the end of the quarter.

Profitability Metrics

You're looking for clear signals on whether Sitio Royalties Corp. (STR) is turning its production into real profit, and the short answer is yes, with some important caveats around non-cash expenses. The royalty business model is inherently high-margin, and STR's Q1 2025 results show they are executing well on that advantage.

The key takeaway is that Sitio Royalties Corp.'s lean cost structure gives it a significant edge, translating into a net margin that comfortably beats the industry average, even with heavy non-cash charges. Here's the quick math on the first quarter of 2025 (Q1 2025), which is the most recent full financial data we have.

Gross, Operating, and Net Margins

A royalty company's profitability starts with a massive structural advantage: they own the mineral rights but generally don't pay the costs of drilling or operating the wells. This is why their gross profit margin is so high.

• Gross Profit Margin: The company boasts a phenomenal gross profit margin, recently reported at approximately 92.28%. This margin is essentially revenue minus minimal costs like production taxes, which is a key structural benefit of the mineral and royalty (M&R) business model.
• Operating Efficiency (Adjusted EBITDA Margin): For a royalty company, Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is the best measure of operational efficiency because it strips out non-cash charges. In Q1 2025, Sitio Royalties Corp. reported $142.2 million in Adjusted EBITDA on $163.52 million in revenue, resulting in an Adjusted EBITDA margin of about 86.9%. That is defintely a lean operation.
• Net Profit Margin: The bottom line is where non-cash expenses hit. For Q1 2025, Sitio Royalties Corp. reported consolidated net income of $26.3 million on $163.52 million in revenue, giving a net profit margin of approximately 16.08%. The gap between the 86.9% Adjusted EBITDA margin and the 16.08% net margin is largely due to Depreciation, Depletion, and Amortization (DD&A), a massive non-cash charge common in the energy sector.

Profitability Trends and Industry Comparison

The trend is positive, and the comparison to peers is strong. You want to see growth and outperformance, and Sitio Royalties Corp. is delivering on both fronts.

In terms of growth, the company's Q1 2025 consolidated net income of $26.3 million was a 36% increase over the same quarter in 2024. This jump was primarily driven by an 18% higher production volume over the year-ago period. The growth isn't just price-driven; it's volume-driven, which is a healthier sign for a royalty holder.

Here is how the company stacks up against the broader industry, especially its E&P (Exploration & Production) cousins:

The fact that the company's net margin of 16.08% is higher than the Oil and Gas - Royalty Trust - United States industry average of 12.75% suggests management is effective in controlling its General & Administrative (G&A) expenses and managing its balance sheet costs like interest. Also, the LTM (Last Twelve Months) Adjusted EBITDA margin of approximately 90% showcases the near-perfect operational efficiency that the royalty model provides, which is why the 2025 free cash flow margins are projected to be more than 3x that of the average E&P peer. You can see the strategic foundation for this performance in their core principles: Mission Statement, Vision, & Core Values of Sitio Royalties Corp. (STR).

What this estimate hides, however, is that the high DD&A charge is a real factor in reported earnings. While it's non-cash, it reflects the depleting nature of the underlying oil and gas assets. Still, the massive cash flow generated-evidenced by the high Adjusted EBITDA-is what funds the dividend and the company's acquisition strategy. The operational efficiency is top-tier; the challenge is managing the non-cash depreciation of the asset base.

Next Step: Look at the company's G&A expenses relative to revenue to confirm the lean cost structure is sustainable.

Debt vs. Equity Structure

You're looking at Sitio Royalties Corp. (STR) and asking a smart question: how is this royalty company funding its growth, and what does that mean for risk? The short answer is that Sitio Royalties Corp. maintains a very conservative capital structure, heavily favoring equity over debt, which is a significant strength in the volatile energy sector.

As of the end of the second quarter of 2025, the company's total principal debt stood at approximately $1.1 billion. This debt is strategically split between a revolving credit facility and senior unsecured notes, which helps manage maturity risk and interest costs. It's a clean, manageable structure.

Here's the quick math on Sitio Royalties Corp.'s debt composition as of June 30, 2025:

• Drawn on Revolving Credit Facility: $488.2 million
• Senior Unsecured Notes: $600.0 million
• Total Debt: $1.0882 billion (approximately $1.1 billion)

The company's revolving credit facility has a borrowing base of $925.0 million, meaning they have substantial remaining liquidity-about $436.8 million-to navigate market shifts or fund opportunistic acquisitions. That's a good cushion.

The real story is the leverage ratio. Sitio Royalties Corp.'s Debt-to-Equity (D/E) ratio is remarkably low at approximately 0.20. To be fair, the average D/E ratio for the U.S. Oil and Gas - Royalty Trust industry is around 0.57, which means Sitio Royalties Corp. is running with roughly 65% less leverage than its peers. This low ratio is defintely a key indicator of financial stability, showing the company relies far more on shareholder equity and retained earnings than borrowed money.

Sitio Royalties Corp. has been proactive in managing its debt cost. They refinanced their high-interest senior notes due in 2026 with a new issuance of $600 million in senior unsecured notes due 2028, carrying a 7.875% interest rate. This move alone was expected to generate savings in excess of $11 million annually in interest expenses.

The balance between debt and equity funding is clear: use low-cost debt for accretive acquisitions and operations, but prioritize returning equity to shareholders. Since becoming public, the company's cumulative return of capital to shareholders-dividends and share repurchases-has exceeded $980 million. In May 2025, the board extended the share repurchase program with an additional $300 million authorization, bringing the total to $500 million. This dual strategy maximizes shareholder value while keeping the balance sheet rock-solid, a strong signal for investors interested in Breaking Down Sitio Royalties Corp. (STR) Financial Health: Key Insights for Investors.

Liquidity and Solvency

You're looking for a clear picture of Sitio Royalties Corp. (STR)'s ability to meet its near-term obligations, and the data tells a story of strong, intentional liquidity. The company's financial health is defintely solid, especially when you look at its cash-generating royalty model, but you still need to watch the debt load.

As of the trailing twelve months (TTM) leading up to November 2025, Sitio Royalties Corp. (STR) reported a Current Ratio of 4.04 and a Quick Ratio of 4.04. This is exceptionally high for any sector, indicating that current assets (those convertible to cash within a year) are more than four times greater than current liabilities. A ratio above 1.0 is generally considered healthy, so this is a significant strength. Frankly, a 4.04 Quick Ratio-which excludes inventory-for a royalty company means they have a lot of highly liquid assets relative to their immediate bills.

Working Capital and Near-Term Cash Position

The working capital (current assets minus current liabilities) trend is strong, driven by the nature of the royalty business, which generates cash flow without the typical high operating expenses or capital expenditure of an exploration and production (E&P) company. This lean structure is the core of their liquidity strength. As of June 30, 2025, the company reported total liquidity of $437.2 million, which is a key number for managing their business and capital return strategy. This liquidity is composed of a small cash balance of $0.4 million and substantial remaining availability of $436.8 million under their $925.0 million revolving credit facility. That's a massive cushion.

• Maintain a large credit line.
• Keep cash on hand low, relying on the credit facility for flexibility.
• Prioritize shareholder returns over hoarding cash.

Cash Flow Statement Overview (Six Months Ended June 30, 2025)

A deeper dive into the cash flow statement for the first half of 2025 shows where the money is coming from and where it is going. Because royalty companies have minimal operating costs, their operating cash flow is very high-margin. Here's the quick math on the major components for the six months ended June 30, 2025 (in thousands of USD):

The high non-cash charges like DDA are typical for an oil and gas royalty company and boost the actual cash flow far beyond the reported net income. The Investing Activities are primarily focused on accretive acquisitions, like the $6.0 million closed in Q2 2025, which adds to their long-term royalty base. On the Financing side, the company is actively returning capital, with approximately $64 million attributable to shareholder returns in Q2 2025 alone, including cash dividends and stock repurchases of $8.9 million. This shows a deliberate strategy to deploy cash flow to shareholders and growth, not to build up a large cash reserve.

Liquidity Strengths and Risks

The main liquidity strength is the business model itself, which leads to 2025 free cash flow margins estimated to be more than 3x that of the average E&P peer. This means they generate a lot of cash relative to their revenue, even in a softer commodity price environment. The primary near-term risk, however, is the proposed merger with Viper Energy, Inc., which was expected to close in Q3 2025. While this merger is intended to create a larger, more diversified entity, it will fundamentally change the capital structure and liquidity profile you are currently analyzing. You need to read the full details on the combined entity's financial health in the article: Breaking Down Sitio Royalties Corp. (STR) Financial Health: Key Insights for Investors.

Valuation Analysis

Sitio Royalties Corp. (STR) currently appears to be trading at a compelling discount based on its core valuation multiples, but this is offset by significant analyst skepticism and a very high payout ratio, suggesting a classic value trap risk. The stock is a complex case: it looks undervalued on paper, but the market is pricing in near-term headwinds, especially around its dividend sustainability.

As a seasoned analyst, my quick take is that the stock is undervalued relative to its peers on an Enterprise Value-to-EBITDA (EV/EBITDA) basis, but the forward Price-to-Earnings (P/E) ratio signals caution about future earnings growth. You defintely need to dig into the quality of those earnings.

Core Valuation Multiples: Undervalued on EV/EBITDA

When we look at Sitio Royalties Corp.'s trailing twelve-month (TTM) valuation ratios for the 2025 fiscal year, the picture is mixed. The trailing P/E ratio sits at 11.60, which is relatively low for the energy sector, but the forward P/E jumps to 14.34, indicating analysts expect a drop in earnings per share (EPS) over the next year. This is a key signal that the market anticipates a deceleration in profitability.

However, the Enterprise Value-to-EBITDA (EV/EBITDA) ratio is a clean metric for royalty companies, and Sitio Royalties Corp.'s TTM EV/EBITDA is only 5.14. For a high-quality mineral and royalty company, this multiple is often considered low, suggesting the company is fundamentally undervalued compared to its asset base and cash flow generation. The Price-to-Book (P/B) ratio is 1.96, which is reasonable and suggests the stock is not wildly overbought relative to its net asset value.

• P/E (TTM): 11.60 (Looks cheap).
• P/B: 1.96 (Solid, not overextended).
• EV/EBITDA: 5.14 (Suggests undervaluation).

Stock Price Trajectory and Analyst Sentiment

The stock price trend over the last 12 months reflects the market's uncertainty. Sitio Royalties Corp. has traded in a wide 52-week range, from a low of $14.58 to a high of $25.52. The current price, sitting around $18.12 as of November 2025, is closer to the low end of that range, which is a significant drop from its price of around $22.31 in November 2024.

This volatility is mirrored in the split analyst consensus. While some analysts maintain a 'Buy' rating, the most recent, granular consensus from a group of 8 analysts leans toward a Sell recommendation, with 4 'Sell' and 1 'Strong Sell' rating. The average 12-month price target is approximately $25.29, which implies a substantial upside of over 39% from the current price, but the mixed ratings show a clear lack of conviction across Wall Street.

Dividend Profile: High Yield, High Risk

Sitio Royalties Corp. is known for its high dividend, which is a major draw for investors. The forward dividend yield is an attractive 7.95% based on an annualized dividend of about $1.44 per share. But here's the catch: the trailing payout ratio is extremely high, sitting around 283.45%. This means the company is paying out nearly three times its reported net income in dividends. Here's the quick math: paying out significantly more than you earn is simply not sustainable long-term without drawing down cash reserves or taking on more debt. This high payout ratio is the primary reason the stock trades at a depressed valuation despite strong cash flow multiples.

For a deeper dive into the operational metrics that drive these numbers, check out Breaking Down Sitio Royalties Corp. (STR) Financial Health: Key Insights for Investors.

Next Action: Portfolio Managers: Model a scenario where the dividend is cut by 50% and assess the resulting impact on the stock's intrinsic value by the end of the quarter.

Risk Factors

You need to know that for a mineral and royalty company like Sitio Royalties Corp. (STR), the biggest risks aren't about drilling costs or operating efficiency; they're about what the market pays for oil and gas and whether the operators on their land keep drilling. The core of their financial health, despite a strong Adjusted EBITDA of $142.2 million in Q1 2025, is exposed to volatile external factors.

The most immediate and material risk is Commodity Price Volatility. Sitio Royalties Corp. is a price taker, not a price maker. The company's own filings show that a mere $1.00 per barrel change in oil prices translates to a roughly $1.7 million change in oil revenues. This is a massive sensitivity. For context, the average unhedged realized oil price dropped from Q1's $70.39 per barrel to $63.03 per barrel in Q2 2025, a significant headwind that contributed to net income falling from $26.3 million to $14.5 million over the same period. That's a 45% drop in net income, and that's the quick math on commodity risk.

Another major operational risk is Operator Activity and Production Variability. Sitio Royalties Corp. doesn't operate the wells; they rely on third-party exploration and production (E&P) companies to drill and complete on their acreage. If those operators cut their capital expenditures (CapEx) due to lower prices or market uncertainty, Sitio Royalties Corp.'s royalty cash flow suffers. While the company saw strong activity in Q1 2025, the full-year production guidance remained unchanged, which implies management anticipates potential declining volumes later in the year, a subtle but defintely important warning sign.

The company is also wrestling with a few other structural and external risks:

• Regulatory and Environmental Policy Changes: The oil and gas industry is constantly under pressure from evolving environmental policies and stringent regulations, which can increase compliance costs or limit drilling permits for their operators.
• Geopolitical Uncertainty: Global instability, including the conflicts in the Middle East and Ukraine, plus actions by OPEC+, directly influence global supply and demand, creating unpredictable market conditions for the company's revenue stream.
• Debt Load: As of June 30, 2025, Sitio Royalties Corp. had $1.1 billion in total debt outstanding. While their adjusted net debt to free cash flow is reportedly half that of their peer group, that debt still needs servicing, especially if cash flow tightens from a prolonged commodity price downturn.

So, how does management mitigate these risks? Their strategy focuses on financial resilience and returning capital to shareholders. The mineral and royalty model is inherently defensive because it has no direct operating costs, giving it a high-margin structure (Adjusted EBITDA margins were 90% on a trailing twelve-month basis). Also, despite the earnings softness in Q2 2025, the company continued its capital return program, declaring a $0.36 per share cash dividend and repurchasing 0.5 million shares for $8.9 million. This aggressive share repurchase acts as a floor to support shareholder value during market dips. You can dive deeper into who is holding the line in Exploring Sitio Royalties Corp. (STR) Investor Profile: Who's Buying and Why?

The biggest near-term action, and a form of strategic risk mitigation, is the pending merger with Viper Energy, Inc., announced in June 2025 and expected to close in Q3 2025. This move is a bet on scale and consolidation to create a more resilient entity. Still, until the deal closes, the merger itself introduces integration and execution risk.

Growth Opportunities

You're looking at Sitio Royalties Corp. (STR) and wondering what's next, especially with the big news this year. The short answer is that the company's future is now tied to a major consolidation play, but its core royalty model still offers a defintely compelling, non-cost-bearing advantage. The single biggest driver for future growth is the proposed merger with Viper Energy, Inc., which was announced on June 2, 2025, and expected to close in the third quarter of 2025.

This all-stock transaction is a classic scale-up move in the mineral and royalty space, which is still highly fragmented. It immediately creates a larger, more diversified entity, which is a key strategic initiative. Post-merger, the combined company will have a stronger balance sheet and greater scale to pursue larger, more accretive deals. Before the merger announcement, Sitio Royalties Corp. was already active, closing $20.6 million in acquisitions in the first quarter of 2025 alone, adding approximately 1,350 net royalty acres (NRAs) in the DJ and Midland Basins.

Future Revenue and Earnings Outlook

The merger complicates a simple forward projection, as Sitio Royalties Corp. discontinued providing its own long-term guidance. However, pre-merger analyst consensus for the full fiscal year 2025 projected total revenues of approximately $577.3 million. This figure reflects a slight dip from the prior 12 months, largely due to commodity price volatility, but the underlying cash flow generation remains strong. For instance, the discretionary cash flow (DCF) for 2025 was projected at around $384 million, or approximately $2.54 per share.

Here's the quick math on the cash flow story: The company's lean structure means it converts a high percentage of revenue to cash. Its last twelve months (LTM) adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margins were a remarkable 90%. That's the power of the royalty model-no drilling or operating costs. This is what makes the business materially different, and more resilient, in a downside price environment compared to traditional exploration and production (E&P) companies.

Competitive Edges and Actionable Insights

The core competitive advantages of Sitio Royalties Corp. are what made it an attractive merger partner in the first place. You need to understand these because they form the foundation of the combined entity's value. The business is built on high-quality mineral and royalty interests across premium U.S. basins, which is a low-risk way to get exposure to oil and gas production. We see the clear focus on shareholder returns as a key action: Sitio Royalties Corp. returned $0.50 per share in capital in Q1 2025, split between a $0.35 per share cash dividend and $0.15 per share in stock repurchases.

The company's strategy hinges on three pillars that create a durable revenue stream:

• Asset Quality: Focus on high-return, oil-weighted rights in prolific U.S. basins.
• Operator Strength: Relying on well-capitalized, active E&P operators to develop the acreage.
• Diversification: No single operator accounts for more than 10% of the company's line-of-sight wells.

What this estimate hides is the execution risk of the merger, which is the immediate near-term focus. The transaction is expected to be completed on August 19, 2025, so you need to monitor the integration process closely. For a deeper dive into who is betting on this strategy, you should read Exploring Sitio Royalties Corp. (STR) Investor Profile: Who's Buying and Why?