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Can This Beaten-Down Natural Gas Stock Turn Things Around in Q1?

Matthew DiLallo, The Motley Fool

Antero Resources (NYSE: AR) has tried everything to stop its stock from plunging. It consolidated its midstream entities, started buying back stock, and slowed its growth engine to appease investors. Shares, however, which plummeted more than 50% last year due to renewed turbulence in the oil market, have fallen another 20% in 2019.

Investors are likely losing confidence that the company can turn things around. That's why they'll be watching its upcoming first-quarter report for any glimmer of hope. Here are three things to keep an eye on when the company unveils those numbers later this week that would show it's heading in the right direction.

A natural gas well with pipelines at sunset.

Image source: Getty Images.

1. Check out what it did with its cash windfall

Antero Resources has been trying to unlock the value of its assets. It's taking a two-pronged approach, which includes merging its midstream entities to create Antero Midstream (NYSE: AM) and buying back stock. The company set a $600 million repurchase program last fall and intended on using the roughly $300 million in cash it received from Antero Midstream on the buyback.

The company got started on buying back stock late last year by using free cash flow to repurchase $129 million of its shares. Ideally, Antero will have continued buying back shares during the first quarter by putting some of the windfall from its midstream merger to work. Doing so would show it's serious about boosting its stock price.

2. See if earnings exceeded expectations

Antero Resources' sell-off this year has been a bit of a head-scratcher. Not only have oil prices bounced back sharply, but the company reported impressive fourth-quarter results in February. The natural gas driller delivered record-setting production, which enabled it to generate $0.46 per share of adjusted earnings, $0.03 per share ahead of the consensus estimate.

Despite those strong results, analysts aren't optimistic heading into the first quarter given that the current consensus is that Antero will earn an adjusted $0.27 per share. That number, however, seems low given the big-time bounceback in oil prices during the quarter. While Antero doesn't produce much crude, it is the largest natural gas liquids (NGLs) producer in the country, which typically follows the price of oil.

On top of that, the company should benefit from recently completed infrastructure projects by pipeline giant Energy Transfer (NYSE: ET). Not only did Energy Transfer finish work on its Mariner East 2 pipeline -- which should enable Antero to capture another $2-$4 per barrel for its NGLs -- but it completed the Rover pipeline, which connects Antero to higher-priced natural gas markets. These factors could help Antero deliver stronger-than-expected first-quarter results, and that is something investors should watch closely.

A drilling rig at sunset.

Image source: Getty Images.

3. Look for any more adjustments to its 2019 game plan

Antero Resources, like many drillers, responded to crashing oil prices at the end of 2018 by reducing its budget for 2019. After spending $1.7 billion on drilling and completing new wells last year, it anticipates investing between $1.3 billion and $1.45 billion this year, and will likely come in closer to the low end of that range. That's still enough money to grow its output by 17% to 20% this year.

The company reiterated that outlook in mid-March when it closed the Antero Midstream transaction. Ideally, the driller will resist the urge to increase spending now that commodity prices are higher since that would enable it to generate more free cash, which it could use to pay down debt or buy back stock. That's why investors should make sure the company doesn't make any significant changes to its 2019 plan.

Hoping for good news this quarter

The market has punished Antero Resources because it outspent cash flow to drive growth over the years. The natural gas driller, however, has started changing its ways. The hope is that this turnaround is even more evident during the first quarter, which would be the case if it bought back more stock, reported stronger-than-expected results, and kept a tight lid on spending. If it does all three, then its shares could finally start bouncing back.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.