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Why Is Concho Resources (CXO) Down 7.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Concho Resources (CXO - Free Report) . Shares have lost about 7.6% 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 Lags on Q1 Earnings Amid Low Oil Prices

Concho Resources posted earnings per share (excluding non-cash and special items) of 72 cents, a penny below the Zacks Consensus Estimate. The underperformance can be attributed to high operating costs incurred in the quarter. The lower-than-expected realized prices (including derivatives impact) also impacted earnings. The metric came in at $37.34 per barrel of oil equivalent (Boe), lagging the consensus estimate of $38.33.

The bottom line also declined from $1.00 per share recorded in the prior-year period due to lower realized prices.

The Permian-focused player generated revenues of $1,104 million, topping the consensus mark of $1,049 million. The better-than expected revenues were driven by higher-than-anticipated production volumes. Precisely, the upstream player’s output of 328,491 barrels of oil equivalent per day (Boe/d) surpassed the Zacks Consensus Estimate of 306,749 Boe/d.

Further, the top line jumped 16.6% from the year-ago level of $947 million.  

Volume Analysis

Concho's average quarterly volume increased 44.1% year over year to 328,491 Boe/d. Total output exceeded the high end of the firm’s forecasted range of 300,000-306,000 Boe/d. 

Of the total volume, 64% consisted of liquids. Daily oil output increased 46% to hit a record of 210,400 barrels, while natural gas production totaled 708,544 thousand cubic feet (Mcf), up 40.3% year over year. The 2018 acquisition of RSP Permian led to the expansion of Midland and Delaware Basin positions, thereby attributing to the production rise.

Realized Prices (Excluding Derivatives Effect)

The average realized natural gas price increased from $2.64 per Mcf in the year-ago quarter to $3.39. However, average oil price realization came in at $49.39 per barrel, lower than $61.29 in the year-ago period. Overall, the company fetched $37.33 per Boe compared with $40.71 a year ago.

Operating Expenses & Income

Operating expenses in the quarter skyrocketed to $1,950 million, resulting in operating loss of $846 million against a gain of $1,015 million in the year-ago period. This was primarily because of a surge in derivatives loss, which totaled $1,059 million in first-quarter 2019 versus $35 million in the corresponding period of 2018. Notably, its production, exploration, depreciation, G&A, gathering, processing and transportation expenses marked an increase on a year-over-year basis. 

Balance Sheet

As of Mar 31, Concho had a long-term debt of $4,567 million, representing a debt-to-capitalization ratio of 20.2%. The company’s liquidity ratio stands at 0.62. It has $615 million remaining under its borrowing credit facility.

Guidance Tweaked

While Concho reiterated its full-year capex budget of $2.9 billion, the company raised its production guidance. The firm now expects 2019 oil output to grow 27-31% y/y versus prior forecast of 26-30%. Production for the second quarter is expected within 316,000-322,000 Boe/d. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Concho Resources has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been 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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