QEP Resources (QEP) Up 2.5% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for QEP Resources, Inc. QEP. Shares have added about 2.5% in that time frame.

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

Fourth-Quarter 2017 Results

QEP Resources reported fourth-quarter 2017 earnings per share – excluding special items – of $1.13, abundantly beating the Zacks Consensus Estimate of a loss of 4 cents. The company had reported adjusted loss of 15 cents per share in the year-ago quarter.

Quarterly revenues of $429 million also beat the Zacks Consensus Estimate of $387 million. Sales were up from the year-ago quarter’s figure of $400 million.

The improvement in results was primarily driven by benefits from the U.S. tax reform and increased overall net realized price.

QEP Resources announced some strategic initiatives for 2018 that are expected to make the company a Permian Basin-focused one. QEP Resources wants to start the selling process of the assets in Williston and Uinta basin in the first half of 2018, while the rest will be scheduled to commence in the second half of the year.

Volume Analysis

Overall production of the company – which is engaged in shifting its focus to the Permian Basin – in the quarter came in at 12,069.9 thousand barrels of oil equivalent (Mboe): 53% liquids, 12% less than the year-ago period. While natural gas volumes of 34.1 billion cubic feet (Bcf) fell 22% year over year, liquid volumes increased marginally to 6,381.5 thousand barrels (Mbbl) from 6,358.8 Mbbl.

The fall in overall production volume was caused by adverse weather conditions in the Permian Basin and Williston Basin. The Pinedale asset sale also affected production.

Realized Prices

QEP Resources’ average realized natural gas price in the quarter was $2.70 per thousand cubic feet (Mcf), down 4% from the year-ago quarter’s price of $2.81. However, average oil price realization improved 13% year over year to $51.30 per barrel. Overall net realized equivalent price averaged $32.21 per barrel of oil equivalent in the quarter, up 18% from the prior-year quarter.

Operating Expenses and Capital Expenditure

Total operating expenses in the quarter increased to $461.8 million from $436.2 million a year ago. The increase was primarily due to a rise in impairment, general and administrative charges, and lease operating expenses.

Capital investment, excluding acquisitions, increased nearly 156% year over year to $372.2 million in the fourth quarter.

2018 Guidance

For 2018, QEP Resources expects oil and natural gas prices to be $55 per barrel and $3 per million British Thermal Units (MMBtu). Total oil-equivalent production is expected to be in the range of 47.7-51.5 million barrels of oil equivalent (MMboe). Total capital investment is expected to be around $1.075 billion. Notably, 65% of the capital investment is expected to be channeled toward the Permian Basin.

The company has also authorized a share buyback program worth $1.25 billion, which is expected to be paid using proceeds from the divestments.

Balance Sheet

As of Dec 31, 2017, QEP Resources had no cash and cash equivalents. The company’s long-term debt was $2,160.8 million, which represents a debt-to-capitalization ratio of 36.3%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.

QEP Resources, Inc. Price and Consensus

 

QEP Resources, Inc. Price and Consensus | QEP Resources, Inc. Quote

VGM Scores

At this time, QEP has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of B on the value side, putting it in the second 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.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

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

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