It has been about a month since the last earnings report for QEP Resources (QEP - Free Report) . Shares have lost about 7.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is QEP 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 catalysts.
QEP Resources Posts In-Line Q3 Earnings, Revenues Beat
QEP Resources reported in-line third quarter profit, primarily driven by robust production. Precisely, the upstream player’s output of 8,404 thousand barrels of oil equivalent (Mboe) surpassed the Zacks Consensus Estimate of 7,500 Mboe. Consequently, the company saw its net income per share (excluding special items) come in at 5 cents per share, same as the Zacks Consensus Estimate.
However, QEP Resources’ bottom line witnessed a fall from the year-ago quarter’s adjusted profit of 17 cents on weak commodity price realizations.
Quarterly revenues of $307.5 million surpassed the Zacks Consensus Estimate of $296 million. However, the top line deteriorated sharply from the year-ago figure of $560.8 million.
Further, it has increased its full-year output guidance, and trimmed cost and capex forecasts. QEP Resources expects to generate positive free cash flow in the remainder of 2019 and 2020 at an oil price of $55 a barrel.
QEP Resources also named two new independent directors to its board as per the company’s cooperation agreement with billionaire activist investor Paul Singer’s Elliott Management Corp. Notably, despite the multibillion-dollar buyout offer from Elliot, the Denver-based oil and gas explorer has decided to remain an independent firm.
Production of crude and natural gas totaled 8,404 Mboe (67% oil and condensate), down 42% from a year ago, primarily reflecting the sale of Haynesville/Cotton Valley and Uinta Basin assets. Further, lower activity levels in the Williston Basin caused a 38% decrease in volumes from the region.
Natural gas volumes substantially declined 78% year over year to 8.2 billion cubic feet (Bcf), while natural gas liquids output edged down 2% to 1,383 thousand barrels (Mbbl). Meanwhile, oil volumes decreased from 6,640.5 Mbbl in third-quarter 2018 to 5,670.5 Mbbl in the quarter under review.
However, with the company’s shift in focus toward the Permian Basin, equivalent production from the area rose 18% year over year to a record 5,658.5 Mboe. Investors should know that QEP Resources allocated bulk of 2019 capital budget for this lucrative basin, as it aims at transforming itself into a Permian pure play.
QEP Resources’ net realized natural gas price in the quarter was $1.13 per thousand cubic feet, down 59% from the year-ago level of $2.76. The realized price also lagged the Zacks Consensus Estimate of $1.47 per Mcf of gas. Net oil price realization declined 8% year over year to $51.83 per barrel and was below the Zacks Consensus Estimate of $53 per barrel. Finally, net NGLs price realization plummeted 71% from the third quarter of 2018 to $8.63 per barrel and also missed the Zacks Consensus Estimate of $10.65.
Costs, Capex and Balance Sheet
Total operating expenses in the quarter decreased significantly to $253.3 million from $431.1 million a year ago. Capital investment — excluding acquisitions — decreased 36.7% year over year to $128.9 million in the third quarter, mainly due to a fall in completion activities in the Permian Basin. Importantly, a tight leash on costs helped QEP Resources generate $17.5 million in free cash flows.
As of Sep 30, QEP Resources had $92.4 million in cash and cash equivalents. The company’s long-term debt was $2,029.4 million, representing a debt-to-capitalization ratio of 42.3%.
For fourth-quarter 2019, QEP Resources expects total oil-equivalent production in the range of 8.3-8.9 million barrels of oil equivalent (MMBoe). Oil and condensate production is expected within 5.7-6 million barrels (MMBbls). While gas output is expected in the range of 7.9-8.4 Bcf, NGLs production is estimated within 1.3-1.5 MMBbls. Capital outlay for the third quarter is anticipated in the band of $101-$116 million.
For full-year 2019, QEP Resources expects total oil-equivalent production in the range of 32-32.6 MMBoe, up from the earlier forecast of 29.9-31 MMBoe. Oil output is now estimated within 21.6-21.9 MMBbls versus prior forecast of 21-21.5 MMBbls. Gas and natural gas liquids production are anticipated in the band of 32.4-32.9 Bcf and 5-5.2 MMBbls, revised upward from the prior guidance of 28-30 Bcf and 4.25-450 MMBbls, respectively.
The company has also lowered its projections for lease operating and adjusted transportation and processing costs to a band of $8.5-$9.25 per Boe from the previous guidance of $9-$10 per Boe. Moreover, QEP Resources now projects general/administrative expenses within $155-$165 million versus prior forecast of $160-$170 million. Finally, the company cut its capital expenditure guidance for 2019 from $580-$600 million to $567-$582 million.
The company projects free cash flow of $120 million in 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, QEP Resources has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, QEP Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.