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Why Is Concho Resources (CXO) Up 10.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Concho Resources (CXO - Free Report) . Shares have added about 10.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Concho Resources 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.

Concho Resources Posts Mixed Q3 Results

Concho Resources reported net income per share (excluding special items) of 61 cents, lagging the Zacks Consensus Estimate of 66 cents and significantly below the prior-year period’s $1.42. The underperformance can be attributed to lower commodity price.

However, the Permian-focused player generated revenues of $1.1 billion, topping the consensus mark by 2.9% due to higher-than-anticipated production volumes. Precisely, the upstream player’s output of 329,803 barrels of oil equivalent per day (Boe/d) surpassed the Zacks Consensus Estimate of 323,541 Boe/d. The top line, though, fell 6.5% from the year-ago level.

As part of its efforts to improve costs and margins, the Midland, TX-based oil and gas producer managed to lower its drilling, completion and equipment costs in the third quarter to $955 per feet, down from $1,023 and $1,355 in the first and second quarters, respectively.   

Volume Analysis

Concho's average quarterly volume increased 15.1% year over year to 329,803 Boe/d (62.4% oil). Total output exceeded the high end of the firm’s forecasted range of 316,000-322,000 Boe/d.

Daily oil output increased 11.6% to 205,870 barrels and natural gas production totaled 743,598 thousand cubic feet (Mcf), up 21.4% year over year. The 2018 acquisition of RSP Permian led to the expansion of its position in Midland and Delaware Basins, thereby attributing to the production rise.

Realized Prices (Excluding Derivatives Effect)

The average realized natural gas price decreased from $4.18 per Mcf in the year-ago quarter to $1.34. Average oil price realization came in at $54.01 per barrel, lower than $56.38 in the year-ago period. Overall, the company fetched $36.74 per Boe compared with $45.23 a year ago.

Operating Performance

Operating expenses in the quarter slumped 79.3% to $293 million, resulting in operating income of $822 million against a loss of $225 million in the year-ago period. Derivative gains and asset sale proceeds resulted in the significant reduction in total costs. Meanwhile, its production, exploration & depreciation, as well as gathering, processing & transportation expenses marked an increase on a year-over-year basis.

Dividend & Balance Sheet

Concho declared a quarterly dividend of 12.5 cents a share, payable on Dec 20, 2019 to its shareholders of record as of Nov 8.

As of Sep 30, Concho had a long-term debt of $4.3 billion, representing a debt-to-capitalization ratio of 19%.

Guidance

Production for the fourth quarter is expected within 318,000-325,000 Boe/d, including the impact of its planned New Mexico property disposition. Concho expects oil to constitute 64% of total production. Concho expects 2019 oil output to grow 22-26% y/y. Full-year capex budget is forecasted to be between $2.8 billion and $3 billion.

 

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Concho 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Concho Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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