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Why Is Viper Energy (VNOM) Down 2.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Viper Energy Partners (VNOM - Free Report) . Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

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

Viper Energy Q3 Earnings Beat Estimates, Revenues Miss

Viper Energy reported third-quarter 2019 earnings per unit of 13 cents, beating the Zacks Consensus Estimate of 6 cents and rising from the year-ago figure of 5 cents.  

The partnership generated operating income of $71.8 million, which missed the Zacks Consensus Estimate of $74 million. Also, the top line declined from the year-ago level of $77.7 million.

The strong earnings can be attributed to higher production volumes and lower average operating expenses, partially offset by a decline in realized oil prices.

In third-quarter 2019, the partnership closed 25 acquisitions for $193.6 million. These acquisitions boosted its mineral interests by 23% from the year-ago level to a total of 17,151 net royalty acres.

Cash Distribution

The partnership was authorized by the board of directors of its general partner to make cash distribution of 46 cents per common unit for the September quarter of 2019.  The new distribution reflects a sequential decrease of 2.1%.

It generated $164.2 million of net cash from operating activities in the first nine months of 2019, lower than the year-ago comparable period’s $176.4 million.

Production Rises

The resources wherein the partnership has mineral interest produced 1,956 thousand oil equivalent barrels (MBoe) in the September quarter of 2019, up from 1,691 MBoe a year ago owing to Midland Basin strength. Of the total volumes, oil accounted for 64%. Production of crude oil, natural gas and natural gas liquids rose in the quarter under review from the year-ago levels.

Average Realized Prices Decline

Average realized oil prices during the quarter were recorded at $51.53 per barrel, down from $54.30 a year ago. Natural gas prices were recorded at $$1.28 per thousand cubic feet, lower than the year-ago quarter’s $2.22. The price of natural gas liquids was $9.84 a barrel, down from the year-ago quarter’s $25.75.

Cost & Expenses

Total expenses in the quarter under review amounted to $25.2 million, higher than $22.9 million in the prior-year period. However, on a per BOE basis, total operating expenses were recorded at $3.11, lower than $3.49 in the year-ago period.

Balance Sheet

As of Sep 30, 2019, the partnership’s cash and cash equivalents were recorded at $20 million. The partnership reported long-term debt of $409.5 million, representing a debt-to-capitalization ratio of roughly 20.5%.

Guidance

The partnership upwardly revised its fourth-quarter 2019 projection of daily net production in the band of 25-27 MBoe from the previous estimate of 23-25 MBoe. It expects first-quarter 2020 production to be flat with the fourth-quarter 2019 level.

However, for full-year 2019, Viper Energy reduced its daily net production guidance from the range of 21.5-22 MBoe to 21-21.5 MBoe. The partnership added that the proportion of oil in total production volumes is projected in the band of 66-67%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -16.22% due to these changes.

VGM Scores

At this time, Viper Energy has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 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, Viper Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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