It has been about a month since the last earnings report for QEP Resources (QEP). Shares have lost about 2.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is QEP 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 its most recent earnings report in order to get a better handle on the important drivers.
QEP Resources’ Posts Q2 Loss, Sales Top Estimates
QEP Resources reported loss per share — excluding special items — of 4 cents against the Zacks Consensus Estimate of earnings of 3 cents. The underperformance was attributed to lower-than-expected commodity price realizations. The bottom line also compared unfavorably with earnings of 6 cents a share in the year-ago period amid lower output and pricing weakness.
Quarterly revenues of $296.2 million nominally surpassed the Zacks Consensus Estimate of $295 million. However, the top line deteriorated sharply from the year-ago figure of $532.4 million.
Overall production of the company came in at 7,534.7 thousand barrels of oil equivalent (Mboe), down 46.6% from the year-ago period. The divestment of Haynesville/Cotton Valley and Uinta Basin assets attributed to the fall in production volumes. Further, lack of new well completions caused 34% y/y decline in volumes from the Williston Basin.
While natural gas volumes substantially declined 81% y/y to 7.2 billion cubic feet (Bcf), natural gas liquids output scaled up 3% to 1,186 thousand barrels (Mbbl). Oil volumes decreased from 6,567.6 Mbbl in second-quarter 2018 to 5,150.3 Mbbl (68.3% of total output) in the quarter under review.
With the company’s shift in focus toward the Permian Basin, equivalent production from the area rose 13% year over year to 4,552.4 Mboe. QEP Resources allocated bulk of 2019 capital budget for this lucrative play, as it aims at transforming itself into a Permian pure play.
QEP Resources’ net realized natural gas price in the quarter was $1.01 per thousand cubic feet, down 63% from the year-ago level of $2.72. The realized price lagged the Zacks Consensus Estimate of $1.38 per Mcf of gas. Net oil price realization declined 4% year over year to $52.35 per barrel.Net NGLs price realization plummeted 47% year over year to $12.06 per barrel and also missed the Zacks Consensus Estimate of $12.81.
Costs, Capex and Balance Sheet
Total operating expenses in the quarter decreased significantly to $241.7 million from $850.3 million a year ago.
Capital investment — excluding acquisitions — decreased more than 53.5% year over year to $170 million in the second quarter, mainly due to a fall in drilling and completion activities in Permian and Williston basins.
As of Jun 30, QEP Resources had $97.1 million in cash and cash equivalents. The company’s long-term debt was $2,028.1 million, representing a debt-to-capitalization ratio of 43%.
For third-quarter 2019, QEP Resources expects total oil-equivalent production in the range of 7.1-7.5 million barrels of oil equivalent (MMBoe). Oil and condensate production is expected within 5.2-5.4 million barrels (MMBbls). While gas output is expected in the range of 5.8-6.2 Bcf, NGLs production is estimated within 0.9-1.1 MMBbls. Capital outlay for the third quarter is anticipated in the band of $150-$160 million.
For full-year 2019, QEP Resources expects total oil-equivalent production in the range of 29.9-3.10 MMBoe versus earlier forecast of 28.5-30.3 MMBoe. Oil output is now estimated within 21-21.5 MMBbl versus prior forecast of 20.5-21.5 MMBbl. Gas and natural gas liquids production is anticipated in the band of 28-30 Bcf and 4.25-4.50 MMBbl compared with the prior guidance of 25.5-27.5 Bcf and 3.7-4.2 MMBbl, respectively.
While the firm has kept its projections for lease operating and adjusted transportation and processing costs unchanged, QEP Resources projects general/administrative expenses within $160-$170 million versus prior forecast of $165-$175 million. The company slashed its capital expenditure guidance for 2019 from $615-$655 million to $580-$600 million. The mid-point of the guidance is 53% lower than 2018 capital spending.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -10.71% due to these changes.
At this time, QEP Resources has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, QEP Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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