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Concho Resources (CXO) Down 8.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Concho Resources (CXO - Free Report) . Shares have lost about 8.3% in that time frame, underperforming the S&P 500.

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

Concho Resources’ Q3 Earnings and Sales Beat Estimates 

Concho Resourcesreported strong third-quarter 2018 earnings and revenues on the back of higher commodity-price realizations and robust production growth.

The company reported adjusted net earnings per share of $1.42, comfortably beating the Zacks Consensus Estimate of $1.13. The bottom line also improved significantly from the prior-year quarter’s adjusted income of 45 cents per share.

Concho Resources’ total operating revenues in the third quarter came in at $1,192 million, increasing substantially from $627 million recorded a year ago. The top line also surpassed the Zacks Consensus Estimate of $1,090 million.

Operating revenues from oil sales recorded a year-over-year increase of 92.2% to $957 million while gas revenues increased 82.2% from the prior-year quarter to $235 million.

Volume Analysis

Concho Resources' average quarterly volume increased 48.4% year over year to 286,634 barrels of oil equivalent per day (Boe/d), exceeding the company’s guidance. Of the total volume, 64.4% consisted of liquids. Daily oil output increased 54.4% to 184,554 barrels while natural gas production was 612,478 thousand cubic feet (Mcf), up 38.7% year over year.

The acquisition of RSP Permian, which was completed on Jul 19, led to the expansion of its Midland and Delaware Basin positions, thereby largely attributing to the production rise.

Realized Prices

The average realized natural gas price jumped from $3.18 per Mcf in the year-ago quarter to $4.18 per Mcf. Average oil-price realization increased to $56.38 per barrel from $45.29 in the year-ago period. Overall, the company fetched $45.23 per Boe compared with $35.29 a year ago.

Operating Costs

In the third quarter of 2018, Concho Resources' total operating expenses came in at $1,417 million, higher than $704 million recorded in the year-ago period. While production costs surged 47.2% year over year to $156 million, gathering, processing and transportation expenses totaled $16 million against no such cost incurred in third-quarter 2017. Notably, production cost per barrel of oil equivalent came down to $5.93 in the quarter from $5.99 in the year-ago quarter.

Balance Sheet

As of Sep 30, Concho Resources had cash and cash equivalents of $24 million. The company had long-term debt of $4,143 million, representing a debt-to-capitalization ratio of 19.4%. It currently has $193 million under its borrowing credit facility.

Dividend Initiation

The company decided to initiate a regular quarterly dividend payment of 12.5 cents (annualized to 50 cents), which will commence from the first quarter of 2019. The decision was backed by the recent RSP Permian acquisition, which is expected to enable the company to generate strong free cash flow from operations.

Guidance

For full-year 2019, the company expects capital expenditure in the band of $3.4-$3.6 billion. In 2019, it expects to run 34 rigs on an average and the number is expected to increase to 38 in 2020. While nearly 67% of 2018 capital budget is directed toward large-scale projects, the company has plans to increase the percentage to 80% in 2019.

The company foresees its average lateral length to be around 9,700 feet, reflecting a 20% increase from 2018. Concho Resources' crude oil output is expected to grow 25% in the fourth quarter of 2019 from the comparable period in 2018. The company, moreover, expects its total production to grow 25% per annum for the next two years.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Concho Resources has a strong Growth Score of A, a grade with the same score on the momentum front. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Concho Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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