It has been about a month since the last earnings report for QEP Resources, Inc. (QEP - Free Report) . Shares have added about 5.8% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is QEP due for a pullback? 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.
First-Quarter 2018 Results
QEP Resources recently reported first-quarter 2018 loss per share — excluding special items — of 20 cents, wider than the Zacks Consensus Estimate of a loss of 18 cents and the prior-year quarter’s loss of 14 cents per share. The underperformance could be attributed to lower production and increase in operating expenses.
Quarterly revenues of $428.9 million beat the Zacks Consensus Estimate of $374 million. Sales were also up from the year-ago quarter’s figure of $420.1 million. The top line was benefited by a rise in overall net realized price.
QEP Resources announced strategic initiatives for 2018 that are expected to make the company a Permian Basin-focused one. The company wants to divest the non-Permian assets in the second quarter of 2018. Proceeds from the divestments will be used for Permian Basin development, debt reduction and share repurchases.
Overall production of the company — engaged in shifting its focus to the Permian Basin — in the quarter came in at 11,724.6 thousand barrels of oil equivalent (Mboe), down 10% than the year-ago period. While natural gas volumes of 35.1 billion cubic feet (Bcf) fell 17% year over year, natural gas liquid volumes plummeted 33% to 904.4 thousand barrels (Mbbl). However, oil production in the quarter increased 6% from the prior-year quarter to 9,740 Mbbl.
The fall in overall production was primarily due to 52% decline in output from the company’s Northern Region. It was partially offset by a rise in volume from the Southern Region, where total production increased 106%. Notably, production in the Permian Basin increased 100% year over year to 2,782.9 Mboe in the quarter. Also, Haynesville/Cotton Valley production increased 110% from the year-ago quarter to 4,290.5 Mboe.
QEP Resources’ net realized natural gas price in the quarter was $2.94 per thousand cubic feet (Mcf), up 4% from the year-ago quarter’s price of $2.84. Net oil price realization improved 10% year over year to $51.54 per barrel. Overall net realized equivalent price averaged $32.34 per barrel of oil equivalent in the quarter, up 15% from the prior-year quarter.
Operating Expenses and Capital Expenditure
Total operating expenses in the quarter decreased to $411 million from $425.3 million a year ago. The decrease was primarily due to a fall in transportation and processing costs, as well as a decline in the purchased oil and gas expense.
Capital investment, excluding acquisitions, increased nearly 95.4% year over year to $418.8 million in the first quarter.
Additionally, in the quarter, the company made $36.2 million worth acquisitions, primarily focused on oil and gas assets in the Permian Basin. The company also closed the divestment of several non-core assets that fetched a total of around $33.3 million in the quarter.
QEP Resources bought back and retired 5,621,540 shares in March for $52.8 million. Moreover, during the end of that month, the company initiated a repurchase program of 592,310 shares for $5.6 million, which settled in April. The company also authorized a share buyback program worth $1.25 billion, which is expected to be paid using proceeds from the divestments.
For 2018, QEP Resources increased total oil-equivalent production guidance to 48.3-51.9 million barrels of oil equivalent (MMboe). Total capital investment is expected to be in the range of $1,070-$1,170 million. Notably, 70% of the capital investment is expected to be channeled toward the Permian Basin. For the second quarter of 2018, the company expects equivalent production to be within 12.4-13.1 MMboe.
As of Mar 31, 2018, QEP Resources had no cash and cash equivalents. The company’s long-term debt was $2,458.1 million, representing a debt-to-capitalization ratio of 39.9%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter.
At this time, QEP has an average Growth Score of C. Its Momentum is doing a lot better with an A. However, the stock was also 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.
Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, QEP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.