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Centennial Resource (CDEV) Up 11.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Centennial Resource (CDEV - Free Report) . Shares have added about 11.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Centennial Resource due for a pullback? 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.

Centennial Resource Q2 Earnings Misses Estimates

Centennial Resource reported second-quarter 2021 adjusted earnings of 2 cents per share, missing the Zacks Consensus Estimate of 6 cents. Yet, the figure improved from the year-ago adjusted loss of 26 cents per share.

Quarterly revenues from oil and gas sales increased to $232.6 million from the prior year’s $90.5 million. Also, the top line beat the consensus mark of $194 million.

Weaker-than-expected quarterly earnings can be attributed to reduced production volumes. The negatives were partially offset by higher realized commodity prices and decreased operating costs.

Q2 Operations

Production

Overall production of 61,647 barrels of oil equivalent per day (Boe/d) declined from the year-ago period’s 68,245 Boe/d. Of the total output, 51.8% comprised crude oil.

Oil volumes deteriorated from 37,411 Bbls/d to 31,912 barrels per day (Bbls/d) for the June quarter. Also, natural gas liquids (NGLs) production totaled 10,297 Bbls/d, down from the year-ago quarter’s 12,264 Bbls/d. Nevertheless, natural gas production of 116,629 thousand cubic feet per day (Mcf/d) increased from the year-ago quarter’s 111,419 Mcf/d.

Price Realizations

Average realized crude price (excluding the effects of derivative settlements) was reported at $60.99 a barrel, up from $21.47 in second-quarter 2020. Also, the same for natural gas rose to $2.55 per Mcf from the prior year’s 87 cents. Furthermore, NGLs price rose to $30.37 per barrel for the second quarter from the year-ago level of $7.72.

Operating Costs

Centennial’s total operating costs were $171.5 million for second-quarter 2021, lower than $183.3 million in the year-ago period due to decreased exploration and other costs.

On a per Boe basis, the company’s second-quarter lease operating expenses were $4.10, lower than the year-ago level of $4.16. Yet, gathering, processing and transportation costs flared up to $3.47 per Boe from the year-ago period’s $2.78.

Capital Expenditure & Balance Sheet

For the June quarter, it incurred capital expenditure of only $83.2 million, of which $82.3 million was allocated for drilling and completion activities.

At second quarter-end, cash and cash equivalents decreased to $4.7 million from the first-quarter level of $10.9 million. Long-term net debt outstanding amounted to $1,054.3 million, down from $1,063.8 million at first quarter-end. Centennial had a net debt to capitalization of 29.3%. At second-quarter end, it had liquidity of $445.7 million.

Cash Flow & Free Cash Flow

The company’s constant focus on cost reduction helped it generate net cash of $107.3 million from operating activities against net cash used of $16.3 million in the year-ago period. Free cash flow generated during the quarter under review was $34.2 million against free cash outflow of $26.4 million in the year-ago period.

Guidance

The company boosted free cash flow guidance for 2021 to $140-$170 million from the previous guided range of $55-$75 million. It is sticking to the two-rig drilling program for 2021, despite the uptick in commodity prices. Also, the company made new oil hedging deals for the next year at an average price of $64.22 per barrel at WTI Price index.

Centennial earlier projected 2021 production in the band of 56,000-63,000 Boe/d, based on capital budget of $260-$310 million. The majority of the capital spending will be allocated for drilling and completion activities. Previously, it anticipated to complete 40-48 gross wells this year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 13.33% due to these changes.

VGM Scores

At this time, Centennial Resource has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Centennial Resource has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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