Callon (CPE) Down 19.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Callon Petroleum (CPE). Shares have lost about 19.4% in that time frame, underperforming the S&P 500.

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

Callon Petroleum Beats Q3 Earnings Estimates, Lifts Guidance

Callon reported third-quarter 2019 adjusted earnings of 19 cents per share, beating the Zacks Consensus Estimate of 18 cents. However, the bottom line declined from 21 cents a year ago.

Operating revenues of $155.4 million surpassed the Zacks Consensus Estimate of $153 million but fell from the year-ago quarter’s $161.2 million.

The better-than-expected quarterly results were driven by a surge in oil equivalent production volumes, partially offset by lower price realizations of commodities and higher total operating expenses.

Production Surges

In the quarter, net production volumes averaged 37,837 barrels of oil equivalent per day (Boe/d), reflecting an increase from the year-ago period’s 34,913 Boe/d. The improved volumes were supported by the company’s large-scale development project in the Delaware Basin, which commenced during July-end. Of the total third-quarter production, 78% was oil and the rest comprised natural gas, similar to the year-ago period.

Price Realizations (Without the Impact of Cash-Settled Derivatives) Plunge

The average realized price per barrel of oil equivalent was $44.64. The figure was significantly lower than the year-ago quarter’s $50.19 a barrel. Average realized price for oil was $54.39 per barrel compared with $56.57 a year ago. Moreover, average realized price for natural gas came in at $1.58 per thousand cubic feet, down from $4.49 in the prior-year quarter.

Total Expenses Increase

Total operating expenses in the quarter amounted to $102.8 million, higher than the year-ago level of $88.4 million. However, lease operating expenses were recorded at $5.65 per Boe in the quarter under review compared with $5.77 a year ago.

Capital Expenditure & Balance Sheet

Capital expenditure in the reported quarter was almost $144 million, lower than the year-ago figure of $157 million.

As of Sep 30, 2019, the company’s total cash and cash equivalents amounted to $11.3 million, and debt was $1.2 billion, with a debt-to-capitalization ratio of 32.5%.

Revised Guidance

For 2019, Callon Petroleum’s production guidance is upwardly revised to the range of 39.2-39.6 thousand barrels of oil equivalent per day (Mboe/d) from 38-39.5 Mboe/d, of which 78% is expected to be oil.

Operational capital expenditure guidance for 2019 is reiterated in the range of $495-$520 million.

Net operated horizontal wells to be placed on production in 2019 are expected between 48 and 50, lower than the 2018 level of 54.

The company expects lease operating expenses in the range of $5.75-$6.25 per Boe in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Callon has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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

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