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Callon Petroleum (CPE) Jumps 54.2% MTD: More Upside Left?
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Callon Petroleum Company’s shares have risen 54.2% in the month-to-date period compared with 12.7% rise of the industry it belongs to. With the energy sector’s rapid recovery from coronavirus woes, Callon Petroleum has managed to move ahead of peers. The Houston, TX-based firm — with a market cap of $2.6 billion — is a top-tier upstream firm with huge Permian presence.
Image Source: Zacks Investment Research
Can It Retain Momentum?
The answer is yes and here’s why we think so.
Callon Petroleum’s operations are primarily focused on the oil-rich Permian Basin, which is among the country’s most prolific oil and gas plays. The company boasts an impressive footprint throughout the core of the Permian Basin, which is the highest-producing shale play in the United States. Callon Petroleum entered the basin in 2009 and has been strengthening foothold in the region since then. Also, it has reserved Permian pipeline networks to transport roughly 90% of produced liquid volumes to local refineries. Moreover, through the Carrizo Oil & Gas acquisition, the company has diversified its presence beyond the Permian basin to oil-rich acres in the Eagle Ford. Currently, it has a total of around 180,000 net acres in these two major shale plays.
Since commodity prices have recovered significantly from the 2020 levels, the global economy has started to recover from COVID-induced volatility. The momentum is likely to continue as the vaccine rollouts will possibly help the economy to recover strongly this year, thereby aiding fuel demand. The increase in oil price is likely to aid the bottom line since the majority of the company’s production comprises crude oil. Moreover, the upstream firm expects gross-operated completed wells for this year in the band of 90-100, which will support output. Notably, the decision of management to shed non-core assets while focusing on more profitable ones is a major positive. It monetized $170 million worth of assets in 2020.
Moreover, Callon Petroleum's rising operating efficiency is laudable. The company projects total operational capital expenditure for this year at $430 million, signaling a 12% reduction from 2020 levels. Importantly, over the next three years, it anticipates to generate cumulative adjusted free cash flow in the range of $500-$800 million, assuming oil price level at the $50 per barrel level. The WTI crude benchmark is currently hovering above $70 per barrel, creating huge upside potential for the company.
Also, its ESG initiatives are commendable. It is getting rid of diesel generators from oilfields through electrification, which will reduce emission from the production process. Moreover, it is enhancing gas gathering options to reduce flaring risk. It intends to eliminate total routine gas flaring by 2025. Other upstream players with significant shale acreages like Centennial Resource Development, Inc. , ConocoPhillips (COP - Free Report) and EOG Resources, Inc. (EOG - Free Report) have similar targets. By 2025, Callon Petroleum expects to reduce GHG emissions intensity by 40-50% from pro-forma 2019 levels.
What’s Holding Back the Stock?
The company expects lease operating expenses in the range of $185-$205 million for 2021, the mid-point of which suggests an increase from $194.1 million in 2020. Rising expenses will likely hurt its profit margin in the coming quarters.
The company’s debt-laden balance sheet is concerning. As of Mar 31, 2021, its total cash and cash equivalents amounted to only $24.4 million, while long-term debt totaled $2,937.2 million. Importantly, it had a total debt to capitalization of 79.3%, significantly higher than the industry average of 39.6%. This can affect the company’s financial flexibility.
For 2021, Callon Petroleum reduced its production guidance to the range of 89-91 thousand barrels of oil equivalent per day (MBoe/d) from the previous estimate of 90-92 MBoe/d due to the announced divestiture of Delaware assets. Lower production estimates can affect the company’s bottom line.
Estimates
The Zacks Consensus Estimate for Callon Petroleum’s bottom line for 2021 is pegged at $7.20 per share, suggesting a 151.8% year-over-year rise. It has witnessed two upward revisions and no downward movement in the past 30 days. Moreover, the consensus mark for 2021 revenues indicates an improvement of 35.1% year over year. The Zacks Rank #3 (Hold) company beat estimates in all the trailing four quarters, with an average of 171.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Callon Petroleum (CPE) Jumps 54.2% MTD: More Upside Left?
Callon Petroleum Company’s shares have risen 54.2% in the month-to-date period compared with 12.7% rise of the industry it belongs to. With the energy sector’s rapid recovery from coronavirus woes, Callon Petroleum has managed to move ahead of peers. The Houston, TX-based firm — with a market cap of $2.6 billion — is a top-tier upstream firm with huge Permian presence.
Can It Retain Momentum?
The answer is yes and here’s why we think so.
Callon Petroleum’s operations are primarily focused on the oil-rich Permian Basin, which is among the country’s most prolific oil and gas plays. The company boasts an impressive footprint throughout the core of the Permian Basin, which is the highest-producing shale play in the United States. Callon Petroleum entered the basin in 2009 and has been strengthening foothold in the region since then. Also, it has reserved Permian pipeline networks to transport roughly 90% of produced liquid volumes to local refineries. Moreover, through the Carrizo Oil & Gas acquisition, the company has diversified its presence beyond the Permian basin to oil-rich acres in the Eagle Ford. Currently, it has a total of around 180,000 net acres in these two major shale plays.
Since commodity prices have recovered significantly from the 2020 levels, the global economy has started to recover from COVID-induced volatility. The momentum is likely to continue as the vaccine rollouts will possibly help the economy to recover strongly this year, thereby aiding fuel demand. The increase in oil price is likely to aid the bottom line since the majority of the company’s production comprises crude oil. Moreover, the upstream firm expects gross-operated completed wells for this year in the band of 90-100, which will support output. Notably, the decision of management to shed non-core assets while focusing on more profitable ones is a major positive. It monetized $170 million worth of assets in 2020.
Moreover, Callon Petroleum's rising operating efficiency is laudable. The company projects total operational capital expenditure for this year at $430 million, signaling a 12% reduction from 2020 levels. Importantly, over the next three years, it anticipates to generate cumulative adjusted free cash flow in the range of $500-$800 million, assuming oil price level at the $50 per barrel level. The WTI crude benchmark is currently hovering above $70 per barrel, creating huge upside potential for the company.
Also, its ESG initiatives are commendable. It is getting rid of diesel generators from oilfields through electrification, which will reduce emission from the production process. Moreover, it is enhancing gas gathering options to reduce flaring risk. It intends to eliminate total routine gas flaring by 2025. Other upstream players with significant shale acreages like Centennial Resource Development, Inc. , ConocoPhillips (COP - Free Report) and EOG Resources, Inc. (EOG - Free Report) have similar targets. By 2025, Callon Petroleum expects to reduce GHG emissions intensity by 40-50% from pro-forma 2019 levels.
What’s Holding Back the Stock?
The company expects lease operating expenses in the range of $185-$205 million for 2021, the mid-point of which suggests an increase from $194.1 million in 2020. Rising expenses will likely hurt its profit margin in the coming quarters.
The company’s debt-laden balance sheet is concerning. As of Mar 31, 2021, its total cash and cash equivalents amounted to only $24.4 million, while long-term debt totaled $2,937.2 million. Importantly, it had a total debt to capitalization of 79.3%, significantly higher than the industry average of 39.6%. This can affect the company’s financial flexibility.
For 2021, Callon Petroleum reduced its production guidance to the range of 89-91 thousand barrels of oil equivalent per day (MBoe/d) from the previous estimate of 90-92 MBoe/d due to the announced divestiture of Delaware assets. Lower production estimates can affect the company’s bottom line.
Estimates
The Zacks Consensus Estimate for Callon Petroleum’s bottom line for 2021 is pegged at $7.20 per share, suggesting a 151.8% year-over-year rise. It has witnessed two upward revisions and no downward movement in the past 30 days. Moreover, the consensus mark for 2021 revenues indicates an improvement of 35.1% year over year. The Zacks Rank #3 (Hold) company beat estimates in all the trailing four quarters, with an average of 171.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Click here to download this report FREE >>