Why Is Cimarex (XEC) Up 21.5% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Cimarex Energy (XEC). Shares have added about 21.5% in that time frame, outperforming the S&P 500.

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

Cimarex Energy Q1 Earnings Beat, Capex Guidance Cut

Cimarexreported first-quarter 2020 earnings per share of 58 cents, beating the Zacks Consensus Estimate of 41 cents. However, the bottom line declined from the year-ago quarter’s $1.20 per share.

Moreover, total revenues of $472.8 million missed the Zacks Consensus Estimate of $514 million and also decreased from the year-ago quarter’s $576.9 million. 

Meanwhile, the better-than-expected earnings can be attributed to expanded oil equivalent production volumes. This was offset partially by lower natural gas, crude and NGL price realizations as well as higher operating costs.

Operational Highlights

Production

In the quarter under review, total production averaged 276.6 thousand barrels of oil equivalent per day (MBOE/D), up from 258.9 MBOE/D in the year-ago period on considerably higher activities in the Permian Basin. Output from the basin grew 21.1% year over year to 203.4 MBOED. Notably, this upstream energy player is currently operating two drilling rigs, which will decline to one by mid-May. Total oil volumes rose to 89.8 thousand barrels per day (MBbls/D) from 79.4 MBbls/D in the year-ago period. Moreover, natural gas production increased to 694.3 MMcf/D from the year-ago level of 639.1 MMcf/D. However, natural gas liquids (NGL) volumes dropped marginally to 71.1 MBbls/D from the year-ago figure of 72.9 MBbls/D.

Realized Prices

Realized price of crude oil fell from $48.87 per barrel to $44.18 and the same for NGL dropped 40.1% year over year to $9.84. Realized prices for natural gas plunged 247.3% to 55 cents per thousand cubic feet.

Costs and Expenses

Overall costs and expenses in the quarter surged to $1,254.5 million from the year-ago level of $528.9 million. Notably, production expense in the first quarter was recorded at $3.47 per BOE, up 2.9% from the prior-year figure.

Financial Condition

As of Mar 31, 2019, the company had cash and cash equivalents of $88.7 million. Net long-term debt was almost $2 billion, representing a total debt to total capital ratio of nearly 0.43.

Cimarex's adjusted cash flow from operating activities totaled $306.4 million, down from $351.1 million in the prior-year quarter. The company spent $248.6 million on exploration and development in the March quarter.

Guidance

Cimarex, carrying a Zacks Rank #5 (Strong Sell), withdrew quarterly and annual production guidance as well as projection for operating costs per unit in the wake of the COVID-19 pandemic. The company curtailed roughly 20% of its May crude oil production volumes. In fact, the upstream firm expects such curbs to continue if commodity prices remain in the bearish territory. It also began an Early Retirement Incentive Plan, which will trim its staff by roughly 10% and lead to annual savings of $25 million.

For 2020, the company cut its total capital investment by 55-60% from the initial guidance. It now expects capex in the range of $500-$600 million. Cimarex is expected to invest $40 million in midstream operations during 2020. Investment in drilling and completion is expected within $300-$400 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted -6.06% due to these changes.

VGM Scores

At this time, Cimarex has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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



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