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Callon (CPE) Down 2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Callon Petroleum (CPE - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Callon 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 drivers.

Second-Quarter 2018 Results

Callon Petroleum Company reported second-quarter 2018 adjusted earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Moreover, the bottom line improved from the year-ago quarter’s 16 cents.

Operating revenues of $137.1 million beat the Zacks Consensus Estimate of $133 million and also surged from $82.3 million in the year-ago quarter.

Higher oil-equivalent production and increased realized oil price backed the second-quarter results.

Production 

Net production volumes averaged almost 29 thousand barrels of oil equivalent per day (MBoe/d) in the quarter compared with 22.2 MBoe/d in the year-ago period. Of the total production in the second quarter, 76% was oil and the rest natural gas. However, portion of oil in the production mix was lower than 79% in second-quarter 2017.

Price Realizations (Without the Impact of Cash-Settled Derivatives)

The average realized price received per barrel of oil equivalent was $52.02. The figure was much higher than the year-ago quarter’s $40.71 per barrel. Average realized price for oil was $61.46 per barrel compared with $45.67 in the year-ago period. Moreover, average realized price for natural gas came in at $3.77 per thousand cubic feet (Mcf), higher than second-quarter 2017’s $3.69 per Mcf.

Expenses

Total operating expenses in the quarter came in at $69.7 million, higher than the year-ago quarter’s $58.5 million. General and administrative expenses increased to $8.3 million from $6.4 million in the second quarter of 2017.

However, lease operating costs per barrel of oil equivalent declined to $4.99 from $5.56 in the year-ago period.

Capital Expenditure & Balance Sheet

Capital expenditure in the reported quarter was $187 million, higher than the year-ago period’s $79.9 million.

As of Jun 30, 2018, the company had total cash and cash equivalents of $509.1 million, and debt of $988.5 million, with a debt-to-capitalization ratio of 30.5%.

Acquisition & Transportation Agreement

In the second quarter, the company agreed to acquire around 28,657 net surface acres worth $570 million in the Delaware Basin, which is expected to conclude in the third quarter.

The company also secured a transportation agreement for 15,000 barrels of oil per day to the Gulf coast, with corresponding sales agreements.

Guidance

For the full year of 2018, the company expects its production in the range of 29.5-32 MBoe/d, of which 77% is expected to be oil. Through July, the company’s production was expected to reach 31.1 MBoed/d level, with 78% oil in the production mix.

Operation capital expenditures for 2018 are expected in the range of $500-$540 million, of which $283 million were used in the first half of the year.

The company is expected to provide an updated guidance that will include the impact of the Delaware Basin acquisition.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.71% due to these changes.

VGM Scores

At this time, Callon has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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




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