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Want to Play Upstream Energy Stock? Consider Concho Resources

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Concho Resources Inc. (CXO - Free Report) has been gaining traction from its huge acreage position in the Permian Basin. Its better-than-expected results for the second quarter of 2020 buoy investors’ optimism. Despite the existing market uncertainties, the stock has gained 6% in the past six months.

Based in Midland, TX, Concho Resources is an independent oil and gas explorer and producer. Founded in 2004, the company focuses on growth through a combination of acquisitions and active drilling activity in the lucrative Permian Basin spread across West Texas and New Mexico. Notably, it is one of the largest producers in the prolific Permian Basin.

Currently, Concho Resources has a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) offer the best investment opportunities. You can see the complete list of today's Zacks #1 Rank stocks here.

Northbound Estimates

Earnings estimate revisions have the greatest impact on stock prices. Concho Resources witnessed seven upward and three downward revisions by the analysts in the past 60 days. The Zacks Consensus Estimate for 2020 bottom line is pegged at a 34.4% rise, indicating improvement from the year-ago quarter’s reported figure.

Positive Earnings Surprise History

Earnings of Concho Resources outpaced the Zacks Consensus Estimate in two of the trailing four quarters while the same met and missed the mark once each. The company delivered an earnings surprise of 67.2%, on average.

Concho Resources Inc. Price and EPS Surprise

Concho Resources Inc. Price and EPS Surprise

Concho Resources Inc. price-eps-surprise | Concho Resources Inc. Quote

High-Quality Acreages

Concho Resources is known for its strategic acreage position in the low-cost Permian Basin. Covering 800,000 gross (550,000 net) acres, its assets are spread over high-quality land across the core Delaware and Midland Basins. Moreover, the buyout of RSP Permian bolstered the company's presence in the region, thereby lifting its output prospects. Precisely, the oil production is estimated to remain unchanged in 2020 despite lowering capital budget by 40%.

Cost Reduction

The company’s cost management and cash-saving efforts have been encouraging. For 2020, Concho Resources trimmed 40% of its capital expenditure to $1.6 billion from its original guidance of $2.7 billion after reckoning the ongoing crash in commodity prices. Moreover, for the current year, Concho projects its controllable costs to stay below $8.50 per Boe. This, in turn, is expected to boost the company’s earnings and cash flows.

Balance Sheet Strength

Concho Resources' total long-term debt is currently around $4 billion with $320 million as cash & cash equivalents. Its total debt-to- total capital of 33.3% is below the industry average of 37.9%. Moreover, the company has $2 billion under its unused credit facility, which will solidify its liquidity position and enable it to navigate through the current market turbulence. Notably, Concho Resources has no debt maturities until 2027. Therefore, the company seems in a decent financial position to overcome the prevalent crisis.

Other Stocks to Consider

Some other top-ranked players in the energy space are Cimarex Energy Co. (XEC - Free Report) , EOG Resources, Inc. (EOG - Free Report) and Royal Dutch Shell plc (RDS.A - Free Report) , each holding the same Zacks Rank as Concho Resources at present.

Cimarex Energy’s sales for 2021 are expected to rise 11% year over year.

EOG Resources’ sales for 2021 are expected to increase 18.8% year over year.

Shell’s bottom line for 2021 is expected to skyrocket 113.5% year over year.

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