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Diamondback (FANG) Down 9.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Diamondback Energy (FANG - Free Report) . Shares have lost about 9.2% 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 catalysts.

Diamondback Q1 Earnings Beat Estimates on Strong Production

Diamondback reported first-quarter adjusted net income per share of $1.39, above the Zacks Consensus Estimate of $1.36 on strong production. In more good news for investors, the energy explorer unveiled a new $2 billion share repurchase scheme through year-end 2020. Further, following up on its earlier announcement, the company raised its quarterly dividend by 50% to 18.75 cents per share (or 75 cents per share annualized).

However, the bottom line fell from the comparable 2018 period profit of $1.64 on lower realized prices. The Permian pure play’s total revenues of $864 million came below the Zacks Consensus Estimate of $875 million but increased more than 80% year over year.

The company saw its first-quarter adjusted EBITDA of $651 million increase 91% from $341 million a year ago.

Production & Realized Prices

The production of oil and natural gas averaged 262.6 MBOE/d (68% oil), up 156% from last year and slightly ahead of the Zacks Consensus Estimate of 261.8 MBOE/d. Diamondback’s oil production surged 137% year over year, while natural gas volumes more than tripled. The 2018 purchases of Energen Corporation and Ajax Resources has transformed Diamondback into one of the leading Permian Basin oil producers.

The average realized crude oil price during the first quarter was $46.12 per barrel, representing a decrease of 25.2% from the year-ago realization of $61.64. Moreover, the average realized natural gas price during the March quarter of 2019 was $1.32 per thousand cubic feet (Mcf), down 39.4% from the year-ago period. Overall, the company fetched $35.63 per barrel compared with $50.52 a year ago.

Expenses

First-quarter cash operating cost was $8 per barrel of oil equivalent (BOE), down from $8.38 per BOE in last year’s corresponding period. Diamondback’s cash G&A expense came in at 55 cents, falling from 96 cents incurred in the first quarter of 2018. However, lease operating expense of $4.61 was up 14.1% year over year. Meanwhile, production taxes fell 21.3% to $2.33 per BOE. The company shelled out $533 million on drilling, completion and non-operated properties, while infrastructure and midstream budget was $94 million.

Financial Position

As of Mar 31, 2019, the Permian-focused operator had $126 million in cash and cash equivalents, while having long-term debt of $4.7 billion. At the end of the quarter, Diamondback, which also has other oil and gas-related operations through Viper Energy Partners L.P. (VNOM), had $1.9 billion undrawn credit facility.

Lowers Full-year Production, LOE Guidance

The company disclosed that it agreed to sell non-core Permian assets (some of it acquired during the Energen transaction) worth $322 million during the quarter. The sale – expected to be complete by Jul 1 – prompted Diamondback to revise its guidance for 2019.

The company is now forecasting full-year output range of 272-287 MBOE/d, of which 68-70% is oil. The earlier prediction was for production between 275 MBOE/d and 299 MBOE/d. Further, management lowered this year’s lease operating expense guidance to $4.25-$4.75 per BOE as against $4.50-$5 before.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Diamondback has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 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 upward 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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