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Here's Why Centennial (CDEV) Stock Is a Great Investment Bet

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Centennial Resource Development, Inc.  has witnessed upward estimate revisions for 2022 and 2023 earnings in the past 60 days.

The independent exploration and production company, with a Zacks Rank #1 (Strong Buy), is likely to record year-over-year earnings growth of 182.6% and 17.4% in 2022 and 2023, respectively.

Factors Favoring the Stock

The West Texas Intermediate crude price has risen significantly over the past year, approaching the $120-per-barrel mark. Crude oil continues to surge due to the Russia-Ukraine crisis, which led to a bumper year for the upstream energy players.

Centennial produces hydrocarbon from the pure-play Permian Basin, the most prolific oil resource in the United States. It has a huge acreage position in the oil-rich Delaware Basin, with operations across 73,500 net acres of land. The upstream energy player has more than 15 years of drilling inventory in the prolific basin. Being a pure-play Permian producer, Centennial is well-positioned to capitalize on the skyrocketing oil prices.

Centennial expects to increase crude oil production by 10-15% this year. With the massive increase in commodity prices, higher output will boost its profits. In the first quarter, Centennial completed six wells ahead of schedule, while delivering capex in line with expectations. Thus, the company expects to generate significant oil production growth in the second quarter.

For 2022, Centennial expects to generate more than $550 million of free cash flow, indicating a significant increase from $206.7 reported in the last year. CDEV will use funds to start a $350-million share repurchase program in the near term. Also, the company made oil hedging deals for this year to reduce risks.

Centennial signed an accord to merge with Colgate Energy Partners last month, creating the largest pure-play exploration and production company in the Delaware Basin. Centennial added that the prolific asset base would help the merged entity to return significant value to stockholders. The merged company will be able to generate more than $1 billion of expected free cash flow in 2023.

Stocks to Consider

Investors interested in the energy sector might also look at the following companies that also presently flaunt a Zacks Rank #1. 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 super majors, characterized by an upstream portfolio with above-industry-average exposure to the faster-growing hydrocarbon producing regions of the world. TTE currently has a Zacks Style Score of A for Value and Growth, and B for Momentum.

TotalEnergies is managing long-term debt quite efficiently and trying to keep the same at manageable levels. Its debt-to-capital has been declining over the past few years. Net debt-to-capital was 12.5% at the end of first-quarter 2022, down from 23.7% at the end of first-quarter 2021. As of Mar 31, 2022, cash and cash equivalents were $31,276 million, which was enough to address the current borrowings of $16,759 million.

Oasis Petroleum  is a top-tier operator in North Dakota's Williston Basin, centered on the Bakken formation. The company has 493,000 net acres in the region, giving it a deep drilling inventory. OAS currently has a Zacks Style Score of A for Value and Growth, and B for Momentum.

Oasis Petroleum exited Chapter 11 Bankruptcy sometime back with a clean balance sheet. OAS managed to wipe out $1.8 billion in debt and now the figure stands at less than $400 million. The company’s quality asset base and balance sheet strength will support free cash flow generation and, consequently, shareholder returns.

PDC Energy, Inc.  is an independent upstream operator that explores, develops and produces natural gas, crude oil and natural gas liquids. As of Mar 31, 2022, PDC Energy had $1.65 billion in total liquidity, while its credit facility currently has a total borrowing base of $3 billion. PDCE currently has a Zacks Style Score of A for Growth and Momentum, and B for Value.

PDC Energy’s cash flows will also receive some downside protection from oil and gas hedges. The company has hedged a portion of its 2022 oil production at attractive prices. At that price, PDC Energy's hedges are expected to add robust positive value in revenues and considerably soften the blow if there is another meltdown in oil prices.


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