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Want to Play Upstream Energy Stock? Consider Pioneer Natural

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Pioneer Natural Resources Company (PXD - Free Report) stock appears to be a solid bet now, based on strong fundamentals and compelling business prospects.

Headquartered in Irving, TX, it is an explorer and producer of oil, natural gas and natural gas liquid. The leading upstream energy firm primarily has operations in the Permian, which is the most prolific basin in the United States.

The company has recorded an earnings growth rate of 22.8% in the past five years, outperforming the industry’s 1.2% growth. This momentum is likely to continue, as indicated by EOG Resources’ projected earnings per share growth of 7.3% for the next five years. Notably, the company beat earnings estimates thrice and missed once in the last four reported quarters. An average earnings surprise of 7.5% was recorded during this time period.

Let's see what makes this Zacks Rank #2 (Buy) stock an attractive investment option at the moment.

Factors Driving Growth

In the Midland basin, Pioneer Natural has the largest acreage position with operations across 680,000 net acres of land. In the prolific basin, Pioneer Natural has identified more than 20,000 drilling sites that are likely to provide the company with decades of crude production. It has roughly 10 more years of drilling inventory in the region, wherein it can keep producing without a deceleration in the current output pace. Moreover, given its acreages in the prolific basin, the company does not have to turn to less productive sites. 

At the end of second-quarter 2020, cash balance totaled $180 million. Long-term debt summed $2,054 million, reflecting a debt to capitalization of 15.7%. The upstream energy player’s debt to capitalization has been persistently lower than the industry over the past few years, reflecting considerably lower debt exposure. Despite an unfavorable business scenario owing to coronavirus-induced dented energy demand, the company is capable of clearing long-term debt with its cash balance and $1.5 billion of credit facilities. Low leverage positions it well ahead of peers to emerge from the downturn.

It revised 2020 capital budget to the band of $1.4-$1.6 billion, representing a decline of roughly 55% from the initial spending budget. Still, for 2020, Pioneer Natural’s revised oil equivalent production volume guidance is projected within 356-371 thousand barrels of oil equivalent per day (MBoe/d), suggesting an improvement from the 2019 figure of 345.5 MBoe/d. Thus, despite lower capital spending, the upstream energy firm is expected to see increased production volumes in 2020 on strong operational efficiencies. Moreover, Pioneer Natural’s revised oil production volumes for 2020 are expected in the range of 203-213 MBbl/d.

The company is targeting total annual return to shareholders to be 10% or more. The shareholder returns will include a growing base dividend, a variable dividend and high-return oil growth. It intends to adopt a variable dividend framework next year, which will likely make the stock more competitive.

Earnings Estimate Revisions

Over the past 30 days, seven analysts have increased earnings estimates for the current year, while three have downwardly revised the same. The net effect has taken the Zacks Consensus Estimate for the current year from $1.37 per share to $1.54 over the said period.

Other Stocks to Consider

Other top-ranked players in the energy space include Noble Energy, Inc. , Murphy Oil Corporation (MUR - Free Report) and Concho Resources Inc. , each holding a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Noble Energy’s bottom line for 2021 is expected to surge 57.9% year over year.

Murphy Oil’s bottom line for 2021 is expected to rise 4% year over year.

Concho Resources’ bottom line for 2020 is expected to rise 36.1% year over year.

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