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Bull of the Day: Pioneer Natural Resources (PXD)

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Pioneer Natural Resources Company (PXD - Free Report) should be one of the big beneficiaries of the upcoming recovery. This Zacks Rank #1 (Strong Buy) is expected to grow its earnings by over 500% this year.

Pioneer is a large oil and gas exploration and production company in the United States. It's one of the largest operators in the Permian Basin.

Pioneer to Buy DoublePoint Energy for $6.4 Billion

On Apr 1, Pioneer announced it agreed to buy DoublePoint Energy in a cash and stock deal worth $6.4 billion.

DoublePoint has assets in the Midland Basin, including tier one acreage adjacent to Pioneer's.

Pioneer expects the transaction to be accretive on cash flow, free cash flow per share, earnings per share and corporate returns in 2021.

Given Pioneer's dedication to returning cash to shareholders, it expects the transaction to lead to an increase in the expected per share variable dividend beginning in 2022.

The deal is expected to close in the second quarter of 2021.

Big Beat in the Fourth Quarter of 2020

On Feb 23, Pioneer reported its fourth quarter 2020 results and easily beat the Zacks Consensus by 62%.

Earnings were $1.07 versus the Zacks Consensus of $0.66.

It generated $294 million in free cash flow in the quarter.

At the end of Q4, as of Dec 31, 2020, it had unrestricted cash on hand of $1.4 billion and net debt of $1.9 billion.

It also had $2.9 billion of liquidity, including the cash and $1.5 billion unsecured credit facility which was undrawn as of Dec 31,2020.

It closed on the Parsley Energy deal in January, and then had net debt of about $5.2 billion.

Pioneer will use cash on hand and also tap its revolving credit facility for the $1 billion for the DoublePoint Energy deal.

Earnings Estimates Rise

After a solid fourth quarter, the closing of the Parsley Energy deal and now the DoublePoint Energy deal, the analysts have continued to raise earnings estimates.

2 analysts have raised estimates for 2021 in the last week, pushing the Zacks Consensus up to $10.08 from $5.86 in the last 90 days.

That is earnings growth of 514% as the company only made $1.64 last year.

The good times are expected to last into 2022 with the Zacks Consensus Estimate rising to $13.11 from $7.50 in the last 3 months. That's another 30% earnings growth.

New Variable Dividend Announced

On Feb 23, Pioneer announced that the board had increased the Company's quarterly cash dividend to $0.56, which was the fourth year in a row the dividend was raised.

It also announced a new long-term variable dividend policy beginning this year.

Pioneer expects to annually distribute up to 75% of the prior year's annual free cash flow, after the payment of the base dividend.

This is expected to begin in 2022, with the Company expecting to distribute up to 50% of 2021 free cash flow, after the payment of the base dividends, assuming the average 2021 WTI oil price is greater than $42 per barrel.

The base dividend is currently yielding 1.5%.

Another Buying Opportunity in Oil Stocks?

The oil stocks mostly hit bottom in Nov 2020.

When the Pfizer vaccine was announced as being successful, the energy stocks took off, along with the price of WTI.

Pioneer shares are up 76% in the last 6 months.

But in the last month, the shares have weakened, and corrected 10%.

The shares are on sale again.

Pioneer trades with a forward P/E of just 15. That makes it a cheap, value stock.

It's not alone.

Competitors EOG Resources (EOG - Free Report) and Diamondback Energy (FANG - Free Report) are also Zacks Rank #1 (Strong Buy) stocks and also trade with cheap forward P/Es.

For investors looking for buying opportunities in value stocks, Pioneer is one to keep on the short list.

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Pioneer Natural Resources Company (PXD) - free report >>

EOG Resources, Inc. (EOG) - free report >>

Diamondback Energy, Inc. (FANG) - free report >>

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