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CENTENNIAL RES (CDEV) Down 21.2% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for CENTENNIAL RES (CDEV - Free Report) . Shares have lost about 21.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CENTENNIAL RES due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Centennial Resource Q2 Earnings Miss Estimates, Revenues Beat

Centennial Resource Developmenthas reported an adjusted loss of 26 cents per share for the second quarter. The loss compares to the Zacks Consensus Estimate of a loss of 25 cents and year-ago adjusted earnings of 8 cents per share.

Revenues from oil and gas sales fell to $90.5 million from $244.2 million a year ago. However, the top line beat the consensus mark of $83 million.

The weak quarterly earnings were primarily due to curtailed total production and lower crude price realizations. This was partially offset by decreased operating expenses, backed by lower lease operating costs.

Operations:

Production

Total production for the reported quarter averaged 68,245 barrels of oil equivalent per day (Boe/d), down from 76,122 Boe/d in the year-ago period. Of the total output, 54.8% comprised crude oil. The downside can be attributed to curtailed production, triggered by market price volatility. It paused around 20% of production volumes in the month of May.

Oil production averaged 37,411 barrels per day (Bbls/d), down from 43,105 Bbls/d in second-quarter 2019. Natural gas liquids (NGLs) production was 12,264 Bbls/d, lower than the year-ago quarter’s 14,785 Bbls/d. However, natural gas production amounted to 111,419 thousand cubic feet per day (Mcf/d), up from the year-ago quarter’s 109,392 Mcf/d.

Price Realizations

The company reported average realized crude price of $21.47 a barrel (excluding the effects of derivate settlements), down from $54.63 in the June quarter of 2019. NGLs were sold at $7.72 a barrel, down from $16.24 in second-quarter 2019. However, average natural gas price rose to 87 cents per Mcf from 81 cents a year ago.

Operating Costs

Centennial incurred $183.3 million of total operating costs in second-quarter 2020, lower than $207.1 million in the year-ago period due to reduced lease operating expenses.

On a per Boe basis, the company’s second-quarter lease operating expenses were $4.16, lower than the year-ago level of $5.04. However, gathering processing and transportation costs increased to $2.78 per Boe from the year-ago period’s $2.34.

Capital Expenditure

In second-quarter 2020, it incurred capital expenditure of only $28 million, of which $21.4 million was allotted to drilling and completion activities. Notably, the company suspended drilling operations and some completion activities in the quarter due to market price volatility.

Balance Sheet

At the end of the quarter under review, cash balance totaled $7.2 million, up from the first-quarter level of $3.8 million. Total debt outstanding amounted to $1,142.9 million, rising from the first-quarter level of $1,135 million. It had a net debt to book equity capitalization of 29%. It had $370 million available under the revolving credit facility.

Guidance

Centennial expects 2020 net average daily production in the range of 64,000-68,000 Boe/d. Net oil production for 2020 is estimated in the band of 34,500-36,500 bpd. Lease operating expense for full-year 2020 is expected to be $4.60-$5.00 per Boe. Gathering, processing and transportation costs will likely be in the range of $2.80-$3.10 per Boe. It is likely to resume drilling activities with one-rig in the December quarter.

The company reduced the expected total capital budget by 60% from the original guidance to the band of $240-$270 million for 2020, the majority of which will be used in drilling and completion activities. It anticipates to complete 30-33 wells in 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -30.21% due to these changes.

VGM Scores

At this time, CENTENNIAL RES has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CENTENNIAL RES has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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