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Denbury Resources (DNR) Down 31.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Denbury Resources (DNR). Shares have lost about 31.8% in that time frame, underperforming the S&P 500.

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

Denbury’s Q1 Earnings Beat Estimates, Revenues Lag

Denbury Resources reported earnings of 10 cents per share in first-quarter 2019 (excluding one-time items), beating the Zacks Consensus Estimate of 8 cents on the back of higher commodity price realizations. However, the bottom line declined from the year-ago figure of 12 cents, primarily due to higher expenses.

Total revenues were $305.5 million, down from $353.2 million in the year-ago quarter. Also, the top line missed the Zacks Consensus Estimate of $312 million. Notably, sales were affected by lower production volumes.

Operational Performance

Production Declines

During the quarter, production averaged 59,218 barrels of oil equivalent per day (Boe/d) compared with 60,338 Boe/d in the prior-year period.

Oil production averaged 57,414 barrels per day (BPD), down from the year-ago level of 58,354 BPD. Natural gas daily production averaged 10,827 thousand cubic feet (Mcf/d), lower than the year-ago period’s 11,904 Mcf/d.

The company’s production from tertiary operations averaged 37,073 Boe/d, down from 38,262 Boe/d in the year-ago quarter.

Price Realization Marginally Up

Oil price realization (including the impact of hedges) averaged $58.09 per barrel in the quarter, marginally increasing from the year-ago level of $57.89. Gas prices rose to $2.68 per Mcf from $2.44 in the year-ago quarter. On an oil-equivalent basis, overall price realization was $56.81 per barrel, slightly higher than the year-earlier level of $56.47.  

Total Expenses Rise

During the quarter, total expenses were $341.9 million, up from $299.6 million in the year-ago period. The surge can be attributed to higher lease operating expenses, which resulted from increased CO2 costs.

Capital Expenditure

Oil and natural gas capital investments were approximately $59.6 million compared with $47.3 million in the year-ago quarter. Total capital spending (excluding capitalized interest) was $61.2 million, higher than $47.7 million in first-quarter 2018.

Financials

Cash flow from operations was $64.4 million, down from $91.6 million in the year-ago quarter.

As of Mar 31, 2019, cash balance was $5.7 million and total debt was $2,525.7 million. It also had a bank credit facility of $615 million.

Guidance

Denbury expects to generate more than $150 million of free cash flow in full-year 2019. The company reiterated its 2019 production guidance in the range of 56,000-60,000 Boe/d. Capital expenditure is estimated in the range of $240-$260 million, down 20-25% from the 2018 capital spending level.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 16.13% due to these changes.

VGM Scores

At this time, Denbury Resources has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Denbury 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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