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Cimarex (XEC) Down 1.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Cimarex Energy (XEC). Shares have lost about 1.7% in that time frame, underperforming the S&P 500.

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

Cimarex Earnings Miss Estimate in Q3, Decline Y/Y

Cimarex Energy reported third-quarter 2019 earnings per share of 91 cents, missing the Zacks Consensus Estimate of 93 cents and declining from the year-ago quarter’s $1.99.

Total revenues of $582.3 million beat the Zacks Consensus Estimate of $570 million but declined from the year-ago quarter’s $591.5 million. 

The weak earnings can be attributed to lower commodity price realizations, partially offset by increased production volumes.

Operational Highlights

Production Rises

In the quarter under review, total production averaged 287.1 thousand barrels of oil equivalent per day (MBOED), up from 218.6 MBOED in the year-ago period on considerably higher activities in the Permian Basin. Output from the basin surged 64% year over year to 198.6 MBOED.

Through the September quarter, this upstream energy player brought 96 gross wells online. 

Total oil volumes rose to 89.7 thousand barrels per day (MBbls/d) from 63.9 MBbls/d in the year-ago period. Moreover, natural gas production increased to 718 MMcf/d from the year-ago level of 558.8 MMcf/d. Natural gas liquids (NGL) volumes jumped to 77.7 MBbls/d from the year-ago figure of 61.6 MBbls/d.

Production expense in the quarter was recorded at $3.34 per BOE, down 12% from the year-ago figure.

Realized Prices Decline

Realized prices for natural gas plunged 52% to 88 cents per thousand cubic feet, and the same for crude oil and NGL fell 10% and 58% year over year to $52.71 and $10.80 per barrel, respectively.        

Financial Condition

As of Sep 30, 2019, the company had cash and cash equivalents of $23.9 million. Net long-term debt was almost $2 billion, which represents a debt-to-capitalization ratio of almost 33.8%.

Cimarex's adjusted cash flow from operating activities totaled $360.7 million, down from $388.7 million in the prior-year quarter. The company spent almost $296 million on exploration and development in the September quarter, of which 84% was directed toward the Permian Basin.

Guidance

Cimarex projects total production for the December quarter of 2019 in the range of 272-292 MBOED. The company also issued its projections of oil equivalent productions for 2019 in the band of 274-278 MBOED.

For 2019, the company lowered its guidance for capital spending on exploration & development activities by 4% to the range of $1.3-$1.4 billion. Cimarex is expected to invest $70 million in midstream operations in 2019. Production expense per BOE is expected in the range of $3.30-$3.55 for 2019.

Assuming WTI crude price at $50 per barrel and NYMEX gas price at $2.50, the company expects Permian operations to generate strong free cash flows.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

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



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