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Why Is Cimarex (XEC) Up 0.6% Since Last Earnings Report?

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Zacks Equity Research
·5 min read
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A month has gone by since the last earnings report for Cimarex Energy (XEC). Shares have added about 0.6% in that time frame, underperforming the S&P 500.

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

Cimarex Beats Q4 Earnings Estimates on Gas Prices

Cimarex Energy reported fourth-quarter 2020 adjusted earnings per share of 89 cents, outpacing the Zacks Consensus Estimate of 71 cents. However, the figure declined from $1.18 per share in the year-ago quarter.

Total revenues of $434.7 million beat the Zacks Consensus Estimate of $421 million but decreased from the year-ago quarter’s $657.2 million. 

The better-than-expected quarterly results can be attributed to higher natural gas price realizations and lower production expenses, partially offset by decreased overall production and realized crude prices.

Operational Highlights

Production

For the quarter under review, total production averaged 229.5 thousand barrels of oil equivalent per day (MBoe/d), down from 292.7 MBoe/d in the year-ago period on considerably lower activities in the Mid-Continent and Permian Basin. The figure was within the guided range of 215-235 MBoe/d. Of the total production, 29.5% was crude oil and 27.7% comprised natural gas liquids (NGLs).

Total oil volumes fell to 67.8 thousand barrels per day (MBbls/d) from 92 MBbls/d in the year-ago period. Moreover, natural gas production decreased to 589.5 MMcf/d from the year-ago level of 732.6 MMcf/d. Also, NGL volumes dropped to 63.5 MBbls/d from the year-ago figure of 78.6 MBbls/d.

Realized Prices

Realized price of crude oil fell from $54.80 per barrel in the prior-year quarter to $40.09. The same for NGL decreased marginally to $14.02 from $14.13 in the year-ago quarter. However, realized prices for natural gas rose to $1.69 per thousand cubic feet from $1.19 recorded a year ago.

Costs and Expenses

Overall costs and expenses for the quarter plunged to $398.3 million from the year-ago level of $1,142.4 million, primarily due to lower impairment charges of oil and gas properties. Production expense for the fourth quarter was recorded at $71.7 million, down from the prior-year figure of $82.7 million. Also, transportation, processing and other operating costs decreased to $52 million from the year-ago figure of $64.8 million. However, general and administrative expenses rose to $30.7 million from $26.3 million in the year-ago period.

Financial Condition

As of Dec 31, 2020, the company had cash and cash equivalents of $273.1 million, marginally up from the third quarter. Net long-term debt was almost $2 billion, representing a net long-term debt to capital of 56.1%. It has no debt maturities till 2024.

Cimarex's adjusted cash flow from operating activities totaled $256.6 million, down from $416 million in the prior-year quarter. The company spent $131.9 million on exploration and development in the December quarter.

Guidance

Cimarex expects average total production for 2021 in the range of 235-255 MBoe/d. However, the mid-point of the range suggests a decline from the 2020 level of 252.5 MBoe/d. Full-year 2021, oil production will likely be in the band of 75-81 MBbls/d, whose mid-point signals a rise from the 2020 reported figure of 76.7 MBbls/d. For the first quarter, the company expects total output within 205-225 MBoe/d.

Total capital expenditure for the year will likely be in the range of $650-$750 million, of which $500-$600 million will be used for drilling and completion, while $40 million will be spent on midstream and saltwater disposal. Total capital investment in 2020 was $577 million.

Climarex expects 2021 free cash flow of $700 million after dividend payments at a WTI crude price of $35 per barrel, indicating a significant increase from $279 million in 2020. At the $55 per barrel level, the potential increase in the free cash flow will be used for further debt reduction.

It expects production expenses for full-year 2021 in the range of $3.10-$3.60 per Boe. Transportation, processing & other expenses will likely be in the band of $2.20-$2.50 per Boe.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Cimarex has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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, Cimarex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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