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Callon (CPE) Down 14.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Callon Petroleum (CPE - Free Report) . Shares have lost about 14.4% in that time frame, underperforming the S&P 500.

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

Callon Petroleum Q3 Earnings & Revenues Beat Estimates

Callon reported third-quarter 2021 adjusted earnings of $2.93 per share, beating the Zacks Consensus Estimate of $2.49. Further, the bottom line significantly rose from earnings of 64 cents per share a year ago.

Operating revenues of $552.6 million beat the Zacks Consensus Estimate of $418 million. Also, the top line increased from the year-ago quarter’s $290 million.

The strong quarterly results can be attributed to increased commodity price realizations and decreased operating expenses.

Production

For the quarter, Callon’s net production volumes averaged 99,703 Boe/d, down from the year-ago period’s 102,029 Boe/d. Production volumes decreased in the Permian Basin while the same in Eagle Ford witnessed a marginal rise. Of the total third-quarter production, 64% was oil.

Similarly, Centennial’s overall production for the quarter declined 5.5% year over year. Yet, it managed to report third-quarter 2021 adjusted earnings of 25 cents per share, beating the Zacks Consensus Estimate of 21 cents.

Callon’s oil production for the quarter was 5,875 thousand barrels (MBbls), in line with the year-ago level. Natural gas production declined to 9,395 million cubic feet (MMcf) from 10,261 MMcf in third-quarter 2020. Also, natural gas liquids (NGLs) production for the quarter under review was recorded at 1,732 MBbls, down from the year-ago figure of 1,802 MBbls.

Price Realizations (Without the Impact of Cash-Settled Derivatives)

The average realized price per barrel of oil equivalent was $54.93. The figure increased from the year-ago quarter’s $28.73 a barrel. The average realized price for oil was $69.67 per barrel compared with $39.43 a year ago. Meanwhile, the average realized price for natural gas came in at $3.89 per thousand cubic feet, up from $1.47 in the prior-year quarter. The average realized price per barrel for NGLs was $33.54, higher than the year-ago level of $12.78.

Total Expenses

Callon’s total operating expenses of $241.5 million declined from the year-ago level of $919.7 million. The year-ago figure includes an impairment charge of $685 million.

Total lease operating costs declined to $42.7 million from the year-ago level of $45.9 million. Yet, the company’s per unit lease operating expenses decreased to $4.66 per Boe for the reported quarter from $4.89 a year ago.

Capital Expenditure & Balance Sheet

Capital expenditure for the reported quarter was $176.5 million. Callon generated an adjusted free cash flow of $119.5 million, up from $80.3 million a year ago.

As of Sep 30, 2021, the company’s total cash and cash equivalents amounted to $3.7 million, marginally down from $3.8 million at second quarter-end. Long-term debt totaled $2,809.6 million, down from $2,865.2 million in the previous quarter. It had a total debt to capitalization of 75.1%.

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Callon is operating with six rigs and 1.5 completion crews for the fourth quarter. Due to the rise in commodity prices, the company now expects to generate free cash flows of more than $250 million for the year. This is likely to help Callon in reducing its debt burden. For 2021, it had plans of divesting $125-$225 million of assets, of which almost $210 million has been done so far.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 8.48% due to these changes.

VGM Scores

At this time, Callon has a strong Growth Score of A, a grade with the same score on the momentum front. However, 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 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 Callon has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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