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CENTENNIAL RES (CDEV) Down 15.4% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for CENTENNIAL RES (CDEV). Shares have lost about 15.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CENTENNIAL RES due for a breakout? 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.

Centennial Q3 Earnings Miss Estimates, Revenues Beat

Centennial Resource Development reported adjusted third-quarter 2019 earnings of 1 cent per share, missing the Zacks Consensus Estimate of 2 cents and declining from the year-ago quarter’s 15 cents.

Revenues from oil and gas sales fell to $229.1 million from $234.9 million a year ago. However, the top line beat the consensus mark of $228 million.

The weak earnings were attributed to lower commodity price realization and increased lease operating expenses. However, the negatives were partially offset by a surge in production.

Production Rises

Total production in the reported quarter averaged 76,312 barrels of oil equivalent per day (Boe/d), up from 62,930 Boe/d in the year-ago period. Of the total output, 55.1% comprised crude oil. The upside can be attributed to strong well results in the Delaware Basin. Moreover, improved well results from New Mexico and Texas attributed to the rise. Notably, the company decreased operated rig count in September to five from six, owing to improved operational efficiencies.

Oil production averaged 42,079 barrels per day (Bbls/d), up from 36,027 Bbls/d in third-quarter 2018. Natural gas production amounted to 124,896 thousand cubic feet per day (Mcf/d), up from the year-ago quarter’s 85,180 Mcf/d. Moreover, natural gas liquids production was 13,417 Bbls/d, higher than the year-ago quarter’s 12,706 Bbls/d.

Price Realization Declines

The company reported average realized crude price of $51.71 a barrel (excluding the effects of derivate settlements), down from $55.68 in the September quarter of 2018. Average natural gas price dropped to 96 cents per Mcf from $1.83 a year ago. Natural gas liquids were sold at $14.47 a barrel, down from $30.85 in third-quarter 2018.  

Total Operating Cost Rises

Centennial incurred $217.8 million of total operating costs in third-quarter 2019, higher than $165.5 million in the year-ago period. On a per Boe basis, the company’s third-quarter lease operating expenses were $6.03, much higher than the year-ago level of $4.09. Gathering processing and transportation costs increased to $2.97 per Boe from the year-ago period’s $2.78.

Capital Expenditure

In third-quarter 2019, it incurred capital expenditure of $212.1 million, including $160.5 million in drilling and completion activities. Notably, the company has reduced capital spending related to drilling and completion for four straight quarters.

Balance Sheet

At the end of the quarter under review, cash balance totaled $11million. Long-term debt amounted to $900 million, reflecting a net debt to book equity capitalization of 24%.    

Guidance Revised Upward

Centennial increased its production guidance for 2019 to the range of 72,250-7,250 Boe/d from previous expectation of 68,000-75,000 Boe/d. Oil production is now expected within 41,250-43,250 Bbls/d for full-year 2019, up from the previous projection of 39,500-42,500 Bbls/d.

It expects total gross wells spud in 2019 in the range of 70-80, unchanged from the previous guidance.

It increased its view for lease operating expenses for the full year to the range of $5.00-$5.60 per Boe from the previous expectation of $4.35-$4.95. Gathering processing and transportation cost expectation is reiterated at the range of $2.50-$2.80.

The company reiterated the full-year capital expenditure program of $765-$925 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -47.62% due to these changes.

VGM Scores

At this time, CENTENNIAL RES has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CENTENNIAL RES has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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