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Denbury Resources (DNR) Up 79.4% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Denbury Resources (DNR - Free Report) . Shares have added about 79.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Denbury 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 the most recent earnings report in order to get a better handle on the important drivers.

Denbury’s Q1 Earnings Beat Estimates, Revenues Miss

Denbury Resources reported first-quarter 2020 earnings (excluding one-time items) of 6 cents per share, beating the Zacks Consensus Estimate by a penny. However, reported earnings were lower than 10 cents per share in the year-ago quarter.

Total revenues were $242 million, down from $305 million in the year-ago quarter. Also, the top line missed the Zacks Consensus Estimate of $281 million.

The better-than-expected earnings were supported by lower lease operating expenses, partially offset by lower production and price realizations of commodities.

Despite the earnings beat, the stock declined as the upstream energy player raised doubts about its capability to continue as a going concern. Notably, the company’s ability to repay $584.7 million of senior secured notes, due to mature in 2021, has diminished considerably owing to the coronavirus pandemic. This has fueled investor concern.

Operational Performance:

Production Falls

During the quarter, production averaged 55,965 barrels of oil equivalent per day (Boe/d) compared with 59,218 Boe/d in the prior-year quarter.

Oil production averaged 54,649 barrels per day (BPD), down from the year-ago level of 57,414 BPD. Natural gas daily production averaged 7,899 thousand cubic feet (Mcf/d), lower than the year-ago 10,827 Mcf/d.

The company’s production from tertiary operations averaged 36,861 Boe/d, down from 37,073 Boe/d in the year-ago quarter.

Price Realizations Decline

Oil price realization (excluding the impact of hedges) averaged $45.96 per barrel in the quarter, down from the year-ago level of $56.50. Gas prices declined to $1.46 per Mcf from $2.68 in the year-ago quarter. On an oil-equivalent basis, overall price realization was $45.09 per barrel, lower than the year-earlier level of $55.27.  

Cost & Expenses

During the quarter, the company incurred lease operating expenses of $109.3 million, lower than the year-ago $125.4 million. Expenses related to transportation and marketing fell to $9.6 million from the year-ago level of $10.8 million. Moreover, total expenses in the reported quarter contracted to $178.8 million from the year-ago $341.9 million.

Capital Expenditure

Oil and natural gas capital investments were $46 million compared with $86.9 million in the year-ago quarter. Total capital spending (excluding capitalized interest and acquisitions) was $38.8 million, lower than $61.2 million in first-quarter 2019.

Financials

Adjusted cash flow from operations was $104.8 million, down from $119.2 million in the year-ago quarter.

As of Mar 31, 2020, the company’s cash balance was $6.9 million and total debt was $2.3 billion, with a debt-to-capitalization of 60.1%.

Guidance

Denbury projects 2020 development capital budget in the range of $95 million to $105 million. This is 44% lower than the initial forecast.

Owing to the coronavirus-hit oil prices, the company is focusing on optimizing cashflows by shutting down uneconomic production activities. Denbury added that through April since late March, it stopped 2,000 barrel of oil equivalent per day (BOE/D) of uneconomic production.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -216.67% due to these changes.

VGM Scores

At this time, Denbury 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 this revision has been net zero. Notably, Denbury 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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