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Callon (CPE) Down 49.4% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Callon Petroleum (CPE - Free Report) . Shares have lost about 49.4% 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 Q2 Earnings Beat on Higher Oil Output

Callon Petroleumreported second-quarter 2020 adjusted earnings of a penny per share against the Zacks Consensus Estimate of a loss of 2 cents. However, the bottom line fell from earnings of 19 cents per share a year ago.

Operating revenues of $157.2 million lagged the Zacks Consensus Estimate of $202 million. Also, the top line declined from the year-ago quarter’s $167.1 million.

The better-than-expected earnings can be attributed to higher oil and gas production volumes, as well as decreased lease operating expenses, partially offset by lower natural gas and oil price realizations.

Reverse Stock Split

The company opted for a 1-for-10 reverse stock split, which took effect on Aug 7, after market close. Through the move, the number of outstanding shares reduced from 397,476,674 (as of Jul 31) to almost 39,747,667. The move is expected to boost its opportunity for institutional ownership.

Production

For the quarter, net production volumes averaged 108,664 barrels of oil equivalent per day (Boe/d), up from the year-ago period’s 40,516 Boe/d. The improved volumes were supported by operations in the Delaware and Midland Basins. Of the total second-quarter production, 65% was oil.

Oil production for the quarter was 6,396 thousand barrels (MBbls), higher than the year-ago level of 2,848 MBbls. Natural gas production rose to 11,009 million cubic feet (MMcf) from 5,031 MMcf in second-quarter 2019. Also, NGLs production for the quarter under review was recorded at 1,657 MBbls.

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

The average realized price per barrel of oil equivalent was $15.90. The figure declined from the year-ago quarter’s $45.31 a barrel. Average realized price for oil was $20.41 per barrel compared with $56.44 a year ago. Meanwhile, average realized price for natural gas came in at $1.11 per thousand cubic feet, down from $1.26 in the prior-year quarter. Notably, average realized price per barrel for NGLs was $8.74.

Total Expenses

Total operating expenses of $1,518.9 million surged from the year-ago level of $108.5 million. Gathering, transportation and processing costs were recorded at more than $20 million compared with no charges in the year-ago period. Notably, the company incurred an impairment charge of $1,276.5 million in the second-quarter 2020.

However, lease operating expenses decreased to $5.14 per Boe for the reported quarter from $6.18 a year ago.

Capital Expenditure & Balance Sheet

Capital expenditure for the reported quarter was $206.1 million, higher than the year-ago figure of $166.2 million. It generated free cash flow of $18 million.

As of Jun 30, 2020, the company’s total cash and cash equivalents amounted to $7.5 million, down from the first quarter’s $14.8 million. Long-term debt totaled $3.4 billion, up from $3.2 billion in the first quarter. It had a total debt to capitalization of 64%.

Guidance for 2020

For 2020, Callon’s total production is expected in the range of 99-101 MBoe/d. Of the total production, 64% is expected to be oil, while natural gas and NGLs will likely be 18% each.

Total operational capital view for the ongoing year is expected in the range of $500-$525 million. It expects gross operated wells drilled in the band of 87-89 for 2020.

Moreover, the company expects 2021 production to be 90-95 MBoe/d and operational capital spending of $400 million, per the maintenance plan.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, Callon has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 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

Callon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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