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Why Is Concho Resources (CXO) Down 10.6% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for Concho Resources Inc. (CXO - Free Report) . Shares have lost about 10.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Concho Beats Q2 Earnings, Lifts Production Outlook

Concho Resources reported second-quarter adjusted net earnings per share of $0.52, comfortably beating the Zacks Consensus Estimate of $0.43 and double the prior-year quarter adjusted income of $0.26.

The outperformance came on the back of higher commodity prices and strong production growth.

Concho Resources’ total operating revenues for the second quarter amounted to $567 million, which increased substantially from $396 million a year ago but was below the Zacks Consensus Estimate of $649 million.

The Permian Basin Advantage

Experts say that it’s cheaper to drill and complete oil wells in the Permian Basin than most other major fields. Moreover, there are certain parts of the shale play whose well-returns are the best in the U.S. With crude prices still down significantly from their 2014 levels, well returns have become a very important metric to gauge profitability.

Permian’s attractive economics means that producers can still make money there at the current, just over-$50-a-barrel price. This is mainly because of the region's extensive pipeline infrastructure, plentiful labor and supplies, and relatively warm winters that makes year-round work possible. Most other domestic shale regions need prices above $60 to support new developments and expansions.

Volume Analysis

Concho Resources' average quarterly volume increased 27% year over year to 184.7 thousand barrels of oil equivalent per day, of which 61% was liquids. Daily oil output was up 27% to 113.2 thousand barrels, while natural gas production came in at 428.8 million cubic feet (up 28%).

Realized Prices

The average realized natural gas price jumped 44% from the year-ago quarter to $2.71 per thousand cubic feet, while average oil price realization increased 7% to $44.75 per barrel. Overall, the company fetched $33.73 per barrel as against $30.00 a year back.

Balance Sheet & Capital Expenditure

As of Jun 30, 2017, Concho Resources had approximately $662 million in cash and cash equivalents. The company had long-term debt of $2,741 million, representing a debt-to-capitalization ratio of 23.9%.

Guidance

Following second-quarter’s impressive production growth, Concho Resources raised its full-year production growth guidance range to 24%–26%, from the prior 21%–25%.

The company has provided third quarter net production guidance of 186–190 thousand barrels of oil equivalent per day. Capital expenditures for 2017 are estimated to be between $1,600 and $1,700 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been two revisions higher for the current quarter compared to two lower.

Concho Resources Inc. Price and Consensus

 

Concho Resources Inc. Price and Consensus | Concho Resources Inc. Quote

VGM Scores

At this time, the stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

The company's stock is suitable solely for growth based on our styles scores.

Outlook

The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.




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