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Why Is Comstock (CRK) Down 26.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Comstock Resources (CRK - Free Report) . Shares have lost about 26.9% in that time frame, underperforming the S&P 500.

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

Comstock Q1 Earnings & Sales Lag Estimates, Improve Y/Y

Comstock Resources reported first-quarter 2019 adjusted net income per share of 22 cents, missing the Zacks Consensus Estimate of 27 cents. Lower-than-expected gas and oil price realizations caused this underperformance. Precisely, gas price realizations came in at $2.72 per thousand cubic feet, falling short of the Zacks Consensus Estimate of $2.85. Oil price realization of $45.34 per barrel also lagged the Zacks Estimate of $49.88.

However, the bottom line rebounded from the comparable year-ago period’s loss of 23 cents. This can be primarily attributed to the production gains from Haynesville and Bakken plays.

The company’s total revenues of $126.9 million fell shy of the Zacks Consensus Estimate of $131 million but jumped 74.8% year over year.

Production & Realized Prices

Production of oil and natural gas averaged 38 billion cubic feet equivalent (Bcfe), up 67.4% from the year ago as the company’s successful Haynesville shale drilling program continues to yield returns. Notably, oil production came in at 810 thousand barrels of oil (Mbbl) compared with 190 Mbbl in the prior-year quarter. This massive skyrocketing surge of 326.3% is attributed to higher production from the Bakken assets acquired in the Jerry Jones transaction. Natural gas output accounted for 87.2% of the company’s total production compared with 95% in the year-earlier quarter.

The average realized crude oil price in the quarter under review was $45.34 per barrel, representing a plunge of 34% from the year-ago realization of $68.71. The average realized natural gas price during the quarter was $2.72 per thousand cubic feet compared with $2.75 in the same period last year.

Expenses

Total operating expenses in the first quarter summed $73.6 million, lower than the year-ago figure of $77.7 million, primarily owing to the absence of loss from the sale of oil and gas properties, which amounted to $28.6 million in the first quarter of 2018. Notably, the company’s lease operating costs per Mcfe decreased to 38 cents from 43 cents a year ago. However, Comstock’s production taxes doubled to 16 cents per Mcfe in the quarter under consideration. Gathering and transportation expenses also inched up a penny to 20 cents per Mcfe in the first quarter of 2019.   

Cash Flow, EBITDAX & Balance Sheet

Comstock’s operating cash flow was $74.7 million, soaring 247% from the year-ago level of $21.5 million. Earnings before interest, taxes, depreciation, amortization and exploration (or EBITDAX) also increased handsomely. The metric augmented 80% y/y to $97 million from $54 million in the year-ago period.

As of Mar 31, the company had $29.3 million as cash and cash equivalents. Its long-term debt of $1,265.8 million translated to a debt-to-capitalization ratio of 68.4%.   

Guidance

For 2019, Comstock now forecasts capex of $318 million for drilling and completion activities in Haynesville/Bossier play as compared to the prior view of $364 million. It additionally intends to spend $27 million on oil properties. The company keeps its 2019 natural gas and oil production outlook intact at 385-415 million cubic feet per day and 8-9 thousand barrels per day, respectively.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Comstock has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile 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, Comstock has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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