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Diamondback (FANG) Up 9.4% Since Last Earnings Report: Can It Continue?

·4 min read

It has been about a month since the last earnings report for Diamondback Energy (FANG). Shares have added about 9.4% in that time frame, outperforming the S&P 500.

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

Diamondback Q1 Earnings and Revenues Top Estimates

Diamondbackreported first-quarter 2021 adjusted earnings of $2.30 per share, which surpassed the Zacks Consensus Estimate of $1.73 and also the year-ago quarter’s earnings of $1.45. The company’s bottom line was aided by better-than-expected production. Precisely, overall volumes were 307.4 thousand barrels of oil equivalent per day (MBOE/d), beating the Zacks Consensus Estimate of 302.6 MBOE/d.

The company’s quarterly revenues of $1.18 billion outperformed the Zacks Consensus Estimate of $1.02 billion and also increased from the year-earlier figure of $899 million.

Production & Realized Prices

The 2018 buyouts of Energen Corporation and Ajax Resources helped Diamondback transform into one of the leading Permian Basin oil producers. Production of oil and natural gas averaged 307.4 MBOE/d comprising 59.9% oil. The figure declined 4.3% from the year-ago quarter’s 321.1 MBOE/d but surpassed the Zacks Consensus Estimate of 302.6 MBOE/d. While oil output was down 8.5% year over year, natural gas volumes rose 6.2% year over year.

The average realized crude oil price in the first quarter was $56.94 per barrel, reflecting a 26.3% rise from the year-ago realization of $45.10. Overall, the company fetched $42.36 per barrel compared with $30.23 a year ago.

Expenses & Financials

First-quarter cash operating costs were $8.06 per barrel of oil equivalent (BOE), down 5.4% from the prior-year figure of $8.52. Diamondback’s lease operating expense (LOE) of $3.69 was down 15.2% year over year. However, production taxes rose 11.5% from the prior-year quarter to $2.71 per BOE. Meanwhile, gathering and transportation expenses were $1.12 per BOE, lower than $1.23 in the first quarter of 2020.

Capital expenditure in the quarter totaled $296 million. The company shelled out $273 million on drilling and completion, and spent another $8 million on non-operated properties. Plus, infrastructure and midstream budget amounted to $8 million and $7 million, respectively.

As of Mar 31, 2020, this Permian-focused operator had $121 million in cash and cash equivalents, and a long-term debt of $7.5 billion with total debt-to-total capital of 41.2%.

Diamondback’s board of directors declared a quarterly dividend of 40 cents per share for the first quarter. The amount will be paid out on May 20, 2021 to its shareholders of record as of May 13.

Further, it generated free cash flow of $331 million in the first quarter.

Meanwhile, Diamondback decided to divest its 95,000 net acres in the Williston Basin to Oasis Petroleum for $745 million. Proceeds from the sale will be used for debt repayment. The deal is slated to close in the third quarter of this year, contingent on certain conditions.

Outlook

Diamondback expects average daily oil production of 350-360 MBOE/d (above the 2020 level of 300 MBOE/d) for 2021 with an estimated capital spend between $1.60 billion and $1.75 billion. Further, this Midland, TX-headquartered company plans to complete 250-259 net wells in 2021 with average lateral length of nearly 10,300 feet.

Diamondback also set predictions for 2021 LOE and G&A units, estimating the two to be $3.9-$4.30 per BOE and 45-55 cents, respectively.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Diamondback has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Diamondback has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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