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Why Is Antero Resources (AR) Down 22.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Antero Resources (AR - Free Report) . Shares have lost about 22.2% in that time frame, underperforming the S&P 500.

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

Antero Resources Q3 Earnings Miss Estimates on Lower Gas Prices

Antero Resources reported adjusted third-quarter 2019 loss per share of 49 cents, wider than the Zacks Consensus Estimate of a loss of 26 cents. In the year-ago quarter, it had recorded earnings of 7 cents per share.

Total operating revenues amounted to $1,118.9 million, beating the Zacks Consensus Estimate of $945 million. Moreover, the top line improved from the year-ago quarter’s $1,076.5 million.

The lower-than-expected bottom-line performance can be attributed to higher operating expenses and a decline in realized commodity prices, partially offset by increased natural gas equivalent production.

Production Rises

Total production through third-quarter 2019 was recorded at 310 billion cubic feet equivalent (Bcfe), which increased 24% from 250 Bcfe a year ago. Natural gas production increased to 210 billion cubic feet (Bcf) (almost 67.7% of total output) from 179 Bcf in the September quarter of 2018.

Production of oil in third-quarter 2019 was 865 thousand barrels (MBbl), down 12% from 978 MBbl in the prior-year period. Its production of 4,307 MBbl of C2 Ethane was 20% higher than 3,579 MBbl in the year-ago quarter. The company’s output of 11,472 MBbl of C3+ NGLs in the September quarter of 2019 was 56% higher than 7,343 MBbl a year ago.

Realized Prices (Excluding Derivatives Settlements) Decline

Natural gas equivalent price realization in the quarter was $2.74 per thousand cubic feet equivalent (Mcfe), down 26% from $3.70 in the year-earlier period. Realized prices for natural gas decreased 15% to $2.50 per thousand cubic feet from $2.95 a year ago.

The company’s oil price realization in the quarter was $46.86 per Bbl, down 23% from $61.06 a year ago. Its realized price for C3+ NGLs declined to $22.53 per Bbl from $38.41 in the prior-year quarter. Realized price for C2 Ethane decreased 61% to $6.15 per Bbl from $15.70 a year ago.

Operating Expenses Surge

Total expenses in the quarter under review rose to $2,104.8 million from $1,071.7 million in the year-ago period. This rise can be attributed to a 85% year-over-year jump in costs related to gathering, compression, processing and transportation to roughly $603.9 million. However, lease operating, marketing and exploration costs declined year over year in the third quarter of 2019.

Share Repurchase

The company returned $17 million to its shareholders in third-quarter 2019 via 5.1 million share buybacks. It has $454 million left on the share repurchase program. Since the initiation of the repurchase program in fourth-quarter 2018, the company has lowered its shares outstanding by 5%.

Capital Spending & Financials

For drilling and completion operations, the company spent $290 million through third-quarter 2019, marking the lowest quarterly spending since 2013.

As of Sep 30, 2019, Antero Resources had no cash and cash equivalents. It had a long-term debt of $3,703.8 million, with a debt-to-capitalization ratio of 33.2%. 

Guidance

The company revised its net natural gas equivalent production guidance for 2019 from the range of 3.15-3.25 Bcfe/d to 3.25 Bcfe/d. The company downwardly revised its view for 2019 drilling and completion costs to $1,275-$1,300 million from the prior guidance range of $1,300-$1,375 million, primarily due to well cost savings.

The company expects net marketing expense for 2019 within 21-23 cents per Mcfe versus prior guidance of 22.5-25 cents, owing to successful mitigation efforts. It has reiterated its guidance for all other metrics.

As far as 2020 is concerned, Antero Resources intends to reach 110-120 well completions, lower than 115-125 expected in 2019. However, average completed lateral length for the next year is expected to be 12,100 feet, much higher than 10,200 feet expected in 2019. The company expects 2020 drilling and completion capital in the range of $1.15-$1.20 billion. Total capital budget for the next year is expected within $1.20-$1.25 billion, which will likely lead to annual output growth of 8-10%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -36.36% due to these changes.

VGM Scores

Currently, Antero Resources has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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, Antero 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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