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Here's Why You Should Hold on to Centennial Resource Now
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Centennial Resource Development, Inc. is likely to gain from its huge acreage position in the Delaware Basin. However, its increasing lease operating expenses are a concern.
This $100-million exploration and production company currently has a Zacks Rank #3 (Hold). Centennial Resource’s earnings are expected to grow 16% in the next five years. The company has a trailing four-quarter positive earnings surprise of 9.7%, on average.
Let’s take a closer look at the factors working in favor of the company right now.
What’s Favoring the Stock?
Centennial is a pure-play Permian Basin — the most prolific oil resource in the United States — hydrocarbon producer. The company has a huge acreage position in the Delaware Basin, with operations across 80,100 net acres of land. Centennial has 2,400 drilling locations in the sub-basin that are likely to provide the company with years of crude production.
Centennial boasts a strong balance sheet, with only $900 million in long-term debt and debt-to-capitalization ratio of 25%, way below the industry average of 41.7%. This can provide it with financial flexibility for growth projects.
The company expects oil production in the range of 42,000-45,600 Bbls/d for full-year 2020. The mid-point of the guided range indicates a 3% year-over-year rise. The 2020 capital budget is expected to decline 50% from its prior guided range of $590-$690 million, which in turn, suggested a 28% fall from the 2019 level. This reflects the explorer’s strong operational efficiencies. Moreover, the company hedged around 25,500 Bbls/d of oil at $26.08 per barrel for the April-September period to counter any additional decrease in commodity prices.
Headwinds
There are some negative factors that are holding back the company from attaining its growth potential.
For 2020, it expects lease operating expenses within $5.90-$6.50 per barrel of oil equivalent, suggesting a considerable rise from $5.26 recorded in 2019. Moreover, gathering processing and transportation cost expectation is in the range of $3.00-$3.40, implying an increase from $2.62 in 2019. This is likely to affect the company’s bottom line.
Although several pipeline projects are expected to support the oil-rich Permian Basin in the coming days, producers are still suffering from infrastructural bottlenecks while selling products at a discounted rate. Moreover, higher output and insufficient natural gas pipelines have created the problem of high flaring rate in the region. Moreover, its free cash flow remained negative over the last few years, reflecting operational weakness.
While the Sino-U.S. phase-one trade agreement has solved a few concerns of the United States, there are several demand issues to be addressed. This raises concerns that the tariff war may again escalate. Moreover, the price war between Saudi Arabia and Russia has wiped out the gains from previous OPEC+ production cuts. As such, the company’s profit levels will decline, since crude contributes majorly to its production.
To Sum Up
Despite significant production growth opportunities, increasing costs and volatile commodity prices are concerns. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Antero Resources’ bottom line for 2020 is expected to rise 22.2% year over year.
Earthstone Energy’s revenues for first-quarter 2020 are expected to rise 33.3% year over year.
FTS International has witnessed three positive estimate revisions in the past 60 days, while no revision in the opposite direction.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Here's Why You Should Hold on to Centennial Resource Now
Centennial Resource Development, Inc. is likely to gain from its huge acreage position in the Delaware Basin. However, its increasing lease operating expenses are a concern.
This $100-million exploration and production company currently has a Zacks Rank #3 (Hold). Centennial Resource’s earnings are expected to grow 16% in the next five years. The company has a trailing four-quarter positive earnings surprise of 9.7%, on average.
Centennial Resource Price and EPS Surprise
CENTENNIAL RES price-eps-surprise | CENTENNIAL RES Quote
Let’s take a closer look at the factors working in favor of the company right now.
What’s Favoring the Stock?
Centennial is a pure-play Permian Basin — the most prolific oil resource in the United States — hydrocarbon producer. The company has a huge acreage position in the Delaware Basin, with operations across 80,100 net acres of land. Centennial has 2,400 drilling locations in the sub-basin that are likely to provide the company with years of crude production.
Centennial boasts a strong balance sheet, with only $900 million in long-term debt and debt-to-capitalization ratio of 25%, way below the industry average of 41.7%. This can provide it with financial flexibility for growth projects.
The company expects oil production in the range of 42,000-45,600 Bbls/d for full-year 2020. The mid-point of the guided range indicates a 3% year-over-year rise. The 2020 capital budget is expected to decline 50% from its prior guided range of $590-$690 million, which in turn, suggested a 28% fall from the 2019 level. This reflects the explorer’s strong operational efficiencies. Moreover, the company hedged around 25,500 Bbls/d of oil at $26.08 per barrel for the April-September period to counter any additional decrease in commodity prices.
Headwinds
There are some negative factors that are holding back the company from attaining its growth potential.
For 2020, it expects lease operating expenses within $5.90-$6.50 per barrel of oil equivalent, suggesting a considerable rise from $5.26 recorded in 2019. Moreover, gathering processing and transportation cost expectation is in the range of $3.00-$3.40, implying an increase from $2.62 in 2019. This is likely to affect the company’s bottom line.
Although several pipeline projects are expected to support the oil-rich Permian Basin in the coming days, producers are still suffering from infrastructural bottlenecks while selling products at a discounted rate. Moreover, higher output and insufficient natural gas pipelines have created the problem of high flaring rate in the region. Moreover, its free cash flow remained negative over the last few years, reflecting operational weakness.
While the Sino-U.S. phase-one trade agreement has solved a few concerns of the United States, there are several demand issues to be addressed. This raises concerns that the tariff war may again escalate. Moreover, the price war between Saudi Arabia and Russia has wiped out the gains from previous OPEC+ production cuts. As such, the company’s profit levels will decline, since crude contributes majorly to its production.
To Sum Up
Despite significant production growth opportunities, increasing costs and volatile commodity prices are concerns. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Stocks to Consider
Some better-ranked stocks in the energy sector include Antero Resources Corporation (AR - Free Report) , Earthstone Energy, Inc. and FTS International, Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Antero Resources’ bottom line for 2020 is expected to rise 22.2% year over year.
Earthstone Energy’s revenues for first-quarter 2020 are expected to rise 33.3% year over year.
FTS International has witnessed three positive estimate revisions in the past 60 days, while no revision in the opposite direction.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>