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Why Is Diamondback (FANG) Down 9.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Diamondback Energy (FANG - Free Report) . Shares have lost about 9.3% in that time frame, underperforming the S&P 500.

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

Diamondback Q3 Earnings Beat Estimates on Strong Production

Diamondback reported third-quarter adjusted net income per share of $1.67, ahead of the Zacks Consensus Estimate of $1.52 and the comparable 2017 period profit of $1.33 on strong production.

The Permian pure play’s total revenues of $538 million came above the Zacks Consensus Estimate of $524 million and increased 78.6% year over year.  The company saw its third-quarter adjusted EBITDA of $371.6 million increase 59.8% from $232.5 million a year ago.

Production & Realized Prices

The production of oil and natural gas averaged 123 MBOE/d (72% oil), up 44.6% from last year. Diamondback’s oil production increased 43% year over year, while natural gas volumes surged 31.5%.  

The average realized crude oil price during the third quarter was $55.99 per barrel, representing an increase of 22.7% from the year-ago realization of $45.62. However, the average realized natural gas price during the September quarter of 2018 was $1.90 per thousand cubic feet (Mcf), down 24.3% from the year-ago period. Overall, the company fetched $46.59 per barrel compared with $38.25 a year ago.

Expenses

Third-quarter cash operating cost was $8.7 per barrel of oil equivalent (BOE), up from $7.67 per BOE in last year’s corresponding period. Diamondback’s lease operating expense and cash G&A expense came in at $4.34 and 78 cents, respectively, increasing from $4.15 and 73 cents incurred in the third quarter of 2017. The company, which closed the previously announced acquisition of Ajax Resources during the quarter, shelled out $321 million on drilling, completion and non-operated properties, while infrastructure and midstream budget was $74 million.

Financial Position

As of Sep 30, 2018, the Permian-focused operator with a market capitalization of almost $11 billion, had $508.4 million in cash and cash equivalents. The company had long-term debt of $2.3 billion, representing a debt-to-capitalization ratio of 28.2%. At the end of the third quarter, Diamondback had $2.7 billion undrawn credit facility.

Importantly, Diamondback delivered a good cash flow performance this year – a benchmark for the oil and gas industry – with $12 million in free cash flow since the beginning of 2018.

Guidance

The company raised its full-year production forecast to reflect a number of acquisitions and surge in output over the past 12 months. Diamondback upsized 2018 output guidance to 1118.5–119.5 MBOE/d – representing annualized production growth of 50% at the midpoint – up from previous estimate of 115–119 MBOE/d. The company also hiked its full-year capital spending outlook to $1.5–$1.575 billion from $1.4–$1.5 billion earlier on added midstream infrastructure outgo.

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 6.39% due to these changes.

VGM Scores

At this time, Diamondback has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. 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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