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Why Is Parsley Energy (PE) Down 70.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Parsley Energy (PE - Free Report) . Shares have lost about 70.2% in that time frame, underperforming the S&P 500.

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

Parsley Q4 Earnings Lag, Sales top Estimates

Parsley Energy, Inc. reported fourth-quarter 2019 results wherein earnings missed the Zacks Consensus Estimate.

The company posted adjusted net earnings per share of 28 cents, lagging the Zacks Consensus Estimate of 31 cents. Moreover, the bottom line declined from 30 cents per share in fourth-quarter 2018 due to higher year-over-year total operating expenses. Total operating expenses came in at $435.6 million in the quarter under review, higher than the year-ago figure of $432.7 million.

However, Parsley Energy’s total revenues of $522.4 million were 14.8% higher than $454.8 million a year ago. Moreover, the top line surpassed the Zacks Consensus Estimate of $507 million on expanded production volumes. As a matter of fact, this upstream player’s output of 146.2 thousand barrels of oil equivalent per day (BOE/d) rose from the year-ago figure of 119.8 thousand BOE/d.

Production Stats and Realized Prices (Minus Derivatives’ Impact)

Parsley Energy's average quarterly volume expanded 22% year over year to 146.2 thousand barrels of oil equivalent per day (comprising 82.7% liquids) on the back of rising production of oil, natural gas and natural gas liquids (NGLs). In the quarter under review, the company placed 37 gross horizontal wells on production.

Average realized oil price improved 4.02% from the year-ago quarter to $56.40 per barrel and natural gas price realization increased 7.77% to 97 cents per thousand cubic feet. Realized price for NGLs in the quarter was $14.14 per barrel, lower than the year-ago level of $25.

Total Expenses

Total operating expenses rose to $435.6 million from the year-ago figure of $432.7 million. Further, lease operating costs climbed to $47.6 million from $39.8 million in the prior year. Depreciation costs also jumped to $210.7 million from $160.7 million in the corresponding quarter of last year.

Capex & Balance Sheet

Capital expenditure totaled $276 million, of which 99.3% was allotted to drilling and completion activities while the remaining was spent on other expenses. 

As of Dec 31, 2019, Parsley Energy had cash and cash equivalents of $20.7 million. Its long-term debt totaled $2,182.8 million, representing a debt-to-capitalization ratio of 27.5%.

Acquisition

In the last reported quarter, Parsley Energy reached an agreement to acquire smaller rival Jagged Peak Energy in an all-stock deal. The transaction was recently completed for worth $1.8 billion.

This strategic move provides Jagged Peak Energy stockholders with 0.447 shares of Parsley Energy Class A common stock for each share held.

Per Parsley Energy, this “low premium” deal will be immediately accretive to its 2020 cash flow along with net asset value and returns on invested capital. Additionally, this Permian pure play will be able to curb its general and administrative costs by almost $25 million in the first year followed by its savings worth $40-$50 million annually.

This all-stock deal will help the combined entity maintain a strong balance sheet with a pro forma net leverage ratio of 1.6x LTM adjusted earnings before interest, income taxes, depreciation, depletion, amortization and exploration expense.

Guidance

Parsley Energy now expects 2020 capital expenditure in the range of $1,600-$1,800 million, indicating a rise from the prior-year reported value of $1,373 million. Full-year lease operating expenses per Boe are predicted to increase to $3.50-$4.50, hinting at a rise from $3.45 reported last year. However, Parsley Energy lowered its annual projection for general and administrative costs per Boe.

Total oil production is now envisioned in the band of 125-133 thousand barrels of oil per day (MBo/d), suggesting growth from the 2019 reported figure of 86.8 MBoe/d. Full-year net total production is anticipated in the range of 200-210 MBoe/d, implying an increase from the year-earlier result of 140.6 MBoe/d.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -23.09% due to these changes.

VGM Scores

At this time, Parsley Energy 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 A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise Parsley Energy has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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