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Callon (CPE) Up 1.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Callon Petroleum (CPE). Shares have added about 1.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Callon due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Callon Petroleum Q2 Earnings Beat Estimates

Callon reported second-quarter 2021 adjusted earnings of $1.49 per share, beating the Zacks Consensus Estimate of $1.42. Further, the bottom line significantly rose from earnings of 5 cents per share a year ago.

Operating revenues of $440.4 million beat the Zacks Consensus Estimate of $340 million. Also, the top line increased from the year-ago quarter’s $157.2 million.

The strong quarterly results can be attributed to increased commodity price realizations and decreased operating expenses.

Production

For the quarter, net production volumes averaged 88,981 Boe/d, significantly down from the year-ago period’s 108,664 Boe/d. Production volumes decreased in both Permian Basin and Eagle Ford. Of the total second-quarter production, 63% was oil.

Oil production for the quarter was 5,102 thousand barrels (MBbls), lower than the year-ago level of 6,396 MBbls. Natural gas production declined to 8,883 million cubic feet (MMcf) from 11,009 MMcf in second-quarter 2020. Also, natural gas liquids (NGLs) production for the quarter under review was recorded at 1,515 MBbls, down from the year-ago figure of 1,657 MBbls.

Price Realizations (Without the Impact of Cash-Settled Derivatives)

The average realized price per barrel of oil equivalent was $48.68. The figure increased from the year-ago quarter’s $15.90 a barrel. Average realized price for oil was $65.36 per barrel compared with $20.41 a year ago. Meanwhile, average realized price for natural gas came in at $2.71 per thousand cubic feet, up from $1.11 in the prior-year quarter. Average realized price per barrel for NGLs was $24.17, higher than the year-ago level of $8.74.

Total Expenses

Total operating expenses of $234.3 million declined from the year-ago level of $1,518.9 million. The year-ago figure includes an impairment charge of $1,276.5 million.

Total lease operating costs declined to $46.5 million from the year-ago level of $50.8 million. Yet, per unit lease operating expenses increased to $5.74 per Boe for the reported quarter from $5.14 a year ago.

Capital Expenditure & Balance Sheet

Capital expenditure for the reported quarter was $149.7 million. It generated adjusted free cash flow of $6.9 million, down from $18 million a year ago.

As of Jun 30, 2021, the company’s total cash and cash equivalents amounted to $3.8 million, significantly down from $24.4 million at first quarter-end. Long-term debt totaled $2,865.2 million, down from $2,937.2 million in the previous quarter. It had a total debt to capitalization of 79.1%.

Guidance

For the third quarter, it expects production within 95.5-97.5 MBoe/d, of which 64% will likely be crude oil. Operational capital spending will likely be in the range of $120-$130 million.

Earlier, Callon reduced its 2021 production guidance to the range of 89-91 MBoe/d due to Delaware assets divestment. The company’s total operational capital expenditure view for this year was expected at $430 million. Also, the upstream firm previously anticipated gross operated completed wells for this year in the band of 90-100. However, the acquisition of Primexx Energy assets might change some of the full-year expectations. The acquiree’s second-quarter net production was 18,000 barrels of oil equivalent per day (Boe/d). Investors are worried that the deal can put further pressure on Callon Petroleum’s already debt-laden balance sheet. The deal is expected to close in the beginning of the fourth quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, Callon has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Callon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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