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Why Is Diamondback (FANG) Down 12.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Diamondback Energy (FANG - Free Report) . Shares have lost about 12.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Diamondback 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. <p style="text-align: justify;"><strong>Diamondback Lags Q2 Earnings Estimates, Sales Beat</strong></p><p style="text-align: justify;">Diamondback reported mixed second-quarter 2018 results, with earnings lagging the Zacks Consensus Estimate while revenues surpassing the same.</p><p style="text-align: justify;">The company reported adjusted net earnings per share of $1.59, missing the Zacks Consensus Estimate of $1.64. The weaker-than-anticipated earnings can be attributed to lower-than-expected natural gas price realizations along with increase in total costs. The company fetched $1.54 per thousand cubic feet (Mcf) for realized natural gas prices, missing the Zacks Consensus Estimate of $1.92 per Mcf. Notably, operating expenses per barrel of oil equivalent increased to $8.83, reflecting a 15.3% rise from the year-ago level of $7.66.</p><p style="text-align: justify;">However, the bottom line improved from the prior-year quarter&rsquo;s adjusted income of $1.40 per share on higher production and improved oil price realizations.</p><p style="text-align: justify;">Diamondback&rsquo;s total operating revenues in the second quarter amounted to $526.3 million, which increased substantially from $269.4 million a year ago. The top line also surpassed the Zacks Consensus Estimate of $477 million.</p><p style="text-align: justify;"><strong>Production and Prices</strong></p><p style="text-align: justify;">Diamondback&#39;s average quarterly volume increased 46.3% year over year to 112.6 thousand barrels of oil equivalent per day (MBoe/d). Of the volume, 73% or 7,478 thousand barrels was oil. While oil production increased 42.8% year over year, natural gas volumes surged 49.2%.</p><p style="text-align: justify;">Average realized oil price jumped about 35.5% from the year-ago quarter to $61.57 per barrel, while average natural gas price realization decreased 40% to $1.54 per Mcf. Overall, the company fetched $50.26 per barrel compared with $38.18 a year ago.</p><p style="text-align: justify;"><strong>Expenses</strong></p><p style="text-align: justify;">Total operating expenses in the quarter under review came in at around $245 million, up 78.6% from the second-quarter 2017 figure of $137.1 million. The increase was mainly driven by higher depreciation costs, which rose 72.7% year over year to stand at $129 million. While lease operating expenses rose 47.1% to a total of $42.6 million, production and ad valorem taxes were up by a whopping 102.8% to come in at $32.2 million. Notably, midstream services costs incurred in the quarter totaled $17.6 million compared with $1.8 million in the corresponding quarter of 2017.</p><p style="text-align: justify;"><strong>Financial Position</strong></p><p style="text-align: justify;">During the quarter under review, the company spent around $370 million on drilling, completion and infrastructure activities. As of Jun 30, Diamondback&rsquo;s consolidated cash and cash equivalents balance was $113.9 million. Long-term debt of the company was $1,967.1 million, representing a debt-to capital ratio of 24.6%.</p><p style="text-align: justify;"><strong>Updated Guidance</strong></p><p style="text-align: justify;">In view of the acquisition of Ajax, Diamondback has increased its output outlook by 4% from the prior guidance. The company now anticipates its full-year production volumes to average 115-119 MBoe/d, indicating around 45% increase (at the midpoint of the guided range) from the 2017 level. Management has also updated its capex budget from the prior range of $1.3-$1.5 billion to $1.4-$1.5 billion.</p>

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -7.52% due to these changes.

VGM Scores

At this time, Diamondback 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 trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Diamondback has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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