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Concho Resources (CXO) Down 2.5% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Concho Resources (CXO - Free Report) . Shares have lost about 2.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

Concho Resources Delivers Stronger Y-oY Results in Q4

Concho Resources posted adjusted net earnings per share of 94 cents, missing the Zacks Consensus Estimate of $1.10. Nonetheless, the bottom line improved from the year-ago figure of 66 cents. The company generated revenues of $1,067 million, lagging the consensus mark of $1,185 million. However, the top line jumped 37% from the year-ago level of $780 million. 

Volume Analysis

Concho Resources' average quarterly volume increased 45.5% year over year to 307,097 Boe/d. Of the total volume, 64.8% consisted of liquids. Daily oil output increased 53.2% to 198,957 barrels, while natural gas production totaled 648,837 thousand cubic feet (Mcf), up 33% year over year. The acquisition of RSP Permian, which was completed on Jul 19, 2018 led to the expansion of Midland and Delaware Basin positions, thereby largely attributing to the production rise.

Realized Prices (Excluding Derivatives Effect)

 The average realized natural gas price declined from $3.33 per Mcf in the year-ago quarter to $2.82. Average oil price realization came in at $49.10 per barrel, lower than $52.84 in the year-ago period. Overall, the company fetched $37.78 per Boe compared with $40.18 a year ago.

Operating Expenses & Income

 While Concho’s production, depreciation, G&A, gathering, processing and transportation expenses increased on a year-over-year basis, the company realized gains on derivatives of $1,625 million against derivatives loss of $415 million in the prior-year quarter. This resulted in operating income of 1,937 million in the quarter under review vis a vis loss of $180 million incurred in the corresponding period of 2017. 

Balance Sheet

As of Dec 31, Concho had a long-term debt of $4,194 million, representing a debt-to-capitalization ratio of 18.3%. The company’s liquidity ratio stands at 1.04. The company currently has $242 million under its borrowing credit facility.

2019 Guidance Revised

Concho now forecasts its capex to be around $2.9 billion, reflecting a 17% decline at the midpoint of its prior guided range of $3.4-$3.6 billion, in an effort to boost cash flows and focus on shareholder value maximization. 

Concho now expects crude oil output growth to be 15% (versus prior forecast of 25%) in the fourth quarter of 2019 from the comparable period in 2018. Nonetheless, the company expects output to grow26-30% year over year in 2019.

For the first quarter of 2019, Concho foresees capital outlay in the band of $825-$875 million. Production in the quarter is expected within 300,000-306,000 Boe/d.

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 -19.83% due to these changes.

VGM Scores

At this time, Concho Resources has an average Growth Score of C, 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, 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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