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Matador (MTDR) Jumps 69.4% in 3 Months: More Room to Run?

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Matador Resources Company’s (MTDR - Free Report) stock has surged 69.4% in the past three months, outperforming the 54.6% rise for the industry. Headquartered in Dallas, TX, Matador Resources — with a market cap of $1.7 billion — is among the leading oil and gas explorers in the shale and unconventional resources in the United States.

The company beat earnings estimates in the trailing four quarters, with an earnings surprise of 149.7%, on average. It continues to benefit from massive oil-rich Delaware and Midland basins.

Can It Retain Momentum?

The answer is yes and here’s why we think so:

Matador’s operations are mainly concentrated in the Permian Basin, which is among the country’s most prolific hydrocarbon plays. Since 2011, the company has boosted its Permian Acreage drastically. From 6,700 net acres in 2011 in the region, its operations now cover 128,200 net acres. Moreover, the company has a prolific Eagle Ford presence of 28,400 net acres.

Matador raised its 2020 production guidance to 27-27.3 million barrels of oil equivalent, indicating a significant increase from 24.2 million BOE in 2019. Total crude oil production guidance has also been enhanced to the 15.7-15.8 million barrels range, indicating an increase from the 2019 level of 14 million barrels. Higher output will boost profit levels.

Importantly, this Zacks Rank #3 (Hold) company had around 6.1 million barrels of oil production hedged for the period of July to December 2020. It made additional hedging deals for 2021 oil and gas production in the second quarter, which will help it navigate through the price volatility.

There is a high demand for midstream infrastructures like oil and gas transportation as well as gathering assets in the U.S. shale plays like the Permian Basin. Through 2020, the company allocated $90-$100 million toward midstream operations. Notably, in third-quarter 2020, its San Mateo operations gathered an average of 192.9 million cubic feet of natural gas per day.

However, there are a few factors that are holding back the stock from reaching its complete potential. Matador’s free cash flow situation has increased the probability of more reliance on debt and equity capital for funding future growth projects. Its balance sheet weakness is reflected by the fact that it has a cash balance of only $67.9 million, with total long-term debt of $1,842 million. Nevertheless, we believe that its systematic and strategic plan of action will drive long-term growth.

Stocks to Consider

Some better-ranked players in the energy space include TC PipeLines, LP Suncor Energy Inc. (SU - Free Report) and Summit Midstream Partners, LP (SMLP - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TC PipeLines’ bottom-line estimates for 2021 have increased nearly 5% in the past 60 days.

Suncor’s sales for 2021 are expected to increase 18.2% year over year.

Summit Midstream’s bottom-line estimates for 2021 have increased 12.4% in the past 60 days.

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Matador Resources Company (MTDR) - free report >>