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Matador (MTDR) Surges 216.4% YTD: What's Behind the Rally?

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Matador Resources Company’s (MTDR - Free Report) shares have surged 216.4% year to date (YTD) compared with 111.3% growth of the composite stocks belonging to the industry.

The Zacks Rank #3 (Hold) stock, with a market cap of $4.5 billion, witnessed a rise in the Zacks Consensus Estimate for 2021 earnings per share in the past 60 days.

Zacks Investment ResearchImage Source: Zacks Investment Research

Let’s delve into the factors behind the stock’s price appreciation.

What’s Favoring the Stock?

The West Texas Intermediate crude price is currently trading around $75 per barrel, suggesting a substantial improvement from a slump into the negative territory in April 2020. Increasing fuel demand on the massive rollout of coronavirus vaccines is aiding the rally in crude prices.

Rising oil prices are undoubtedly a boon for Matador’s upstream operations. This is because the upstream energy player has a strong presence in oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. In the September-end quarter, its total production volume averaged 8,283 thousand barrels of oil equivalent (MBoe), higher than 6,715 MBoe a year ago.

For 2021, Matador revised its oil-equivalent production guidance upward to 30.7-31.2 million barrels from 29.9-31 million barrels. The production estimates also indicate an improvement from the 2020 levels of 27.5 million barrels. MTDR has hedging deals for 2021 oil and gas production in place, which will help it to navigate any weak price environment.

Matador continues to improve its capital efficiency. The company incurred capital expenditures for drilling, completing and equipping wells of about $121 million, about 14% below its previously-mentioned $140 million for third-quarter 2021. Notably, about $5-$6 million of the savings were backed by improved operational efficiencies and lower drilling and completion costs in the Delaware basin.

The rapidly-spreading omicron variant of coronavirus is a concern as countries consider new lockdown measures. Hence, the short-term fuel demand looks cloudy. With the rolling out of the coronavirus vaccines worldwide, the long-term outlook continues to be rosy.

Risks

Although commodity prices have improved significantly, most analysts opine that the current uptick in oil prices is expected to be unsustainable as it is largely dependent on OPEC+ members’ compliance on production curtailments.

As a result of the rising commodity prices, Matador started experiencing inflation in the costs of certain oilfield services, including diesel, steel, labor and trucking costs. Should oil pricing hold, MTDR expects to face additional service cost inflation in the future, which might increase costs to drill, complete, equip and operate wells.

Key Picks

Investors interested in the energy sector might look at the following companies that presently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

TotalEnergies SE (TTE - Free Report) has one of the best production growth profiles among the oil supermajors, characterized by an upstream portfolio, with above industry-average exposure to the faster-growing hydrocarbon producing regions of the world. TTE is making regular investments to expand the renewable operation and strives to achieve net-zero emission by 2050.

TotalEnergies' earnings for 2021 are expected to surge 360.8% year over year. TTE currently has a Zacks Style Score of A for Value and B for Growth. The company is managing long-term debt efficiently and trying to keep the same at manageable levels. Its debt to capital has been declining in the past few years.

Canadian Natural Resources Limited (CNQ - Free Report) is one of the largest independent energy companies in Canada. CNQ has a broad portfolio of low-risk exploration and development projects with a strong international exposure that yields long-term volume growth at above-average rates. As of year-end 2020, CNQ had approximately 12.106 billion oil-equivalent barrels (BOE) in total proved reserves.

Canadian Natural Resources’ earnings for 2021 are expected to surge 1,085.4% year over year. CNQ currently has a Zacks Style Score of B for Growth. CNQ raised its dividend by 25% in November, reflecting strength in its cash flows. The company is counted as a 'Canadian Dividend Aristocrat' with an attractive yield. Canadian Natural Resources has a solid track record of dividend hikes, increasing the payout for 22 consecutive years.

PDC Energy (PDCE - Free Report) is an independent upstream operator that engages in the exploration, development and production of natural gas, crude oil and natural gas liquids. PDCE, which reached its present form following the January 2020 combination with SRC Energy, is currently the second-largest producer in the Denver-Julesburg Basin. As of 2020-end, PDC Energy's total estimated proved reserves were 731,073 thousand barrels of oil equivalent.

PDC Energy's 2021 earnings are expected to surge 286.2% year over year. PDCE beat the Zacks Consensus Estimate in all of the last four quarters, with an earnings surprise of 51.06%, on average. As of Sep 30, 2021, PDC Energy had $1.7 billion in total liquidity. Its credit facility currently has a total borrowing base of $2.4 billion. PDC Energy's debt maturity profile is favorable.