Callon (CPE) Up 65.6% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Callon Petroleum (CPE). Shares have added about 65.6% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Callon Petroleum Beats Q3 Earnings Estimates on Higher Production
Callon Petroleum Company reported third-quarter 2020 adjusted earnings of 64 cents per share, which significantly beat the Zacks Consensus Estimate of 15 cents. However, the bottom line fell from earnings of $1.93 per share a year ago.
Operating revenues of $269.7 million beat the Zacks Consensus Estimate of $249 million. Also, the top line increased from the year-ago quarter’s $155.4 million.
The better-than-expected results can be attributed to higher oil and gas production volumes, as well as decreased lease operating expenses, partially offset by lower natural gas and oil price realizations.
Production
For the quarter, net production volumes averaged 102,029 barrels of oil equivalent per day (Boe/d), significantly up from the year-ago period’s 37,837Boe/d. The improved volumes were supported by operations in the Delaware Basin. The Carrizo acquisition boosted the absolute production figures. Of the total third-quarter production, 63% was oil. Callon Petroleum resumed completion and drilling activities at Eagle Ford and Delaware assets.
Oil production for the quarter was 5,875 thousand barrels (MBbls), higher than the year-ago level of 2,725 MBbls. Natural gas production rose to 10,261 million cubic feet (MMcf) from 4,538 MMcf in third-quarter 2019. Also, NGLs production for the quarter under review was recorded at 1,802 MBbls.
Price Realizations (Without the Impact of Cash-Settled Derivatives)
The average realized price per barrel of oil equivalent was $28.73. The figure declined from the year-ago quarter’s $44.64 a barrel. Average realized price for oil was $39.43 per barrel compared with $54.39 a year ago. Meanwhile, average realized price for natural gas came in at $1.47 per thousand cubic feet, down from $1.58 in the prior-year quarter. Notably, average realized price per barrel for NGLs was $12.78.
Total Expenses
Total operating expenses of $919.7 million surged from the year-ago level of $102.8 million. Gathering, transportation and processing costs were recorded at $22.2 million versus no charges in the year-ago period. Notably, the company incurred an impairment charge of $685 million in third-quarter 2020, which primarily boosted total operating expenditure.
However, per unit lease operating expenses decreased to $4.89 per Boe for the reported quarter from $5.65 a year ago.
Capital Expenditure & Balance Sheet
Capital expenditure for the reported quarter was $137.2 million, lower than the year-ago figure of $144 million. It generated free cash flow of $80.3 million.
As of Sep 30, 2020, the company’s total cash and cash equivalents amounted to $10.5 million, up from the second quarter’s $7.5 million. Long-term debt totaled $3.2 billion, down from $3.4 billion in the second quarter. It had a total debt to capitalization of 72.6%.
Guidance for 2020
For 2020, Callon Petroleum’s total production is expected in the range of 100-101 MBoe/d, which marks an increase from its previous guidance. Of the total production, 63% is expected to be oil, while natural gas and NGLs will likely constitute 19% and 18%, respectively.
Operational capital view for the ongoing year is expected in the range of $500-$510 million, reflecting a further decrease from prior expectation. It expects gross operated wells drilled in the band of 87-89 for 2020. Lease operating expense for the full year is now expected within $200-$205 million, marking a decline from its previous guidance.
Moreover, the company expects 2021 production to be 90-92 MBoe/d and operational capital spending of $375-$400 million, per the maintenance plan.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
Currently, Callon has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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 #4 (Sell). We expect a below average return from the stock in the next few months.
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