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Why Is Diamondback (FANG) Up 5.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Diamondback Energy (FANG - Free Report) . Shares have added about 5.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Diamondback due for a pullback? 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.

Diamondback Q2 Earnings Miss, Production Soars

Diamondback Energy delivered a comprehensive second-quarter miss. Weaker-than-expected natural gas price realizations led to the underperformance. Amid natural gas flaring and pipeline constraints, gas prices entered into negative territory in the Permian during the quarter, with Diamondback losing money despite producing the commodity. Precisely, natural gas prices came in at a negative $0.41 per thousand cubic feet (Mcf) versus the Zacks Consensus Estimate of $1.04 and the year-ago figure of $1.54. Consequently, the company posted adjusted net income per share of $1.70, lagging the Zacks Consensus Estimate of $1.74 but increasing from the year-ago figure of $1.59.

The Permian pure play’s total revenues of $1,021 million missed the Zacks Consensus Estimate of $1,035 million but increased nearly 94% year over year.

Production & Realized Prices

The 2018 purchases of Energen Corporation and Ajax Resources transformed Diamondback into one of the leading Permian Basin oil producers. Production of oil and natural gas averaged 280.4 thousand barrels of oil equivalent per day (MBOE/d), comprising 68% oil. The figure increased 149% from a year ago and marginally surpassed the Zacks Consensus Estimate of 277.2 MBOE/d. Its oil production surged 132.7% year over year and natural gas volumes almost tripled.

The average realized crude oil price during the second quarter was $54.41 per barrel, representing a decrease of 11.6% from the year-ago realization of $61.56. Overall, the company fetched $39.19 per barrel compared with $50.24 a year ago.

Expenses & Financials

Second-quarter cash operating cost was $8.67 per barrel of oil equivalent (BOE), down from $8.83 in the corresponding period of last year. Diamondback’s cash G&A expense was 51 cents, falling from 87 cents incurred in the second quarter of 2018. However, lease operating expense of $4.98 was up 19% year over year. Meanwhile, production taxes fell 20% from the prior-year quarter to $2.51 per BOE.

Capital expenditure in the quarter totaled $721 million. The company shelled out $579 million on drilling, completion and non-operated properties, while infrastructure and midstream budget was $100 million.
 
As of Jun 30, 2019, the Permian-focused operator had $326 million in cash and cash equivalents, and a long-term debt of $4.5 billion. The debt-to-capital ratio of the Zacks Rank #3 (Hold) firm was 22.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Guidance Tweaked

The company now expects full-year output in the range of 277-284 MBOE/d (68-70% oil) versus prior guidance of 272-287 MBOE/d. Further, full-year capex is now expected to be $2,725 million compared with the prior expectation of $2,700-$3,000 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Diamondback has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 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, 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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