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Concho Resources (CXO) Up 2.1% Since Last Earnings Report: Can It Continue?

·4 min read

A month has gone by since the last earnings report for Concho Resources (CXO). Shares have added about 2.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Concho Resources 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.

Concho Resources Q2 Earnings Beat on Strong Production

Concho Resources reported second-quarter 2020 net income per share (excluding special items) of $1.13, outperforming the Zacks Consensus Estimate of 33 cents as well as the prior-year period’s earnings of 69 cents. The company’s bottom line was favorably impacted by better-than-expected daily production volumes. Precisely, the upstream player’s output of 319 thousand barrels of oil equivalent per day (MBoe/d) surpassed the Zacks Consensus Estimate of 310.1 MBoe/d.

However, this Permian-focused player’s revenues of $474 million missed the consensus mark of $850 million and also declined from the year-ago level of $1.13 billion due to lower commodity price realizations.

The company’s adjusted EBITDA decreased 11.85% from the year-ago quarter to $632 million while cash flow from operating activities improved to $1.52 billion from $1.40 billion.

In another second-quarter update, Solaris Water Midstream announced the expansion of its joint venture with Concho wherein the former will be in charge of the latter's produced water gathering, transportation, disposal and recycling activities across a 2.3 million-acre area in Eddy and Lea counties of New Mexico.

Volume Analysis

Concho's average quarterly volume declined 3.04% year over year to 319MBoe/d (62.7% oil).

Daily oil output fell 7.4% year over year to 200 thousand barrels while natural gas production slipped 2.44% year over year to 719 million cubic feet (MMcf).

Realized Prices (Excluding Derivatives Effect)

The average realized natural gas price decreased from $1.16 per thousand cubic feet (Mcf) in the year-ago quarter to 68 cents. The average oil price realization came in at $23.66 per barrel, lower than $56.02 in the year-ago period. Overall, the company fetched $16.31 per Boe compared with $37.68 a year ago.

Operating Performance

The company reported an operating loss of $508 million. Operating expenses in the quarter amounted to $982 million. A year ago, Concho recorded an operating loss of $405 million. However, as part of its efforts to improve costs as well as margins, the company succeeded in cutting 25% of its controllable expenses year over year to $7.49 per Boe.

Balance Sheet

As of Jun 30, this Midland, TX-based oil and gas producer had long-term debt of $4 billion, representing a total debt-to-total capital of 33.3%.

Guidance

For the ongoing year, Concho projects its controllable costs to stay below $8.50 per Boe. The company reiterates its 2020 output and capex guidance at 197,000 Boe/day and $1.6 billion, respectively.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 82.58% due to these changes.

VGM Scores

Currently, Concho Resources has a nice Growth Score of B, 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 quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Concho Resources has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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