Why Is Concho Resources (CXO) Down 3.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Concho Resources (CXO). Shares have lost about 3.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Concho Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Concho Resources Posts In-Line Q1 Results

Concho Resources reported first-quarter net income per share (excluding special items) of 72 cents, in line with the Zacks Consensus Estimate and the prior-year period earnings. The company’s bottom line was favorably impacted by better-than-anticipated production volumes, partly offset by lower commodity prices.

Precisely, the upstream player’s output of 326 thousand barrels of oil equivalent per day (MBoe/d) surpassed the Zacks Consensus Estimate of 323.8 MBoe/d.

The Permian-focused player generated revenues of $922 million, missing the consensus mark and the year-ago level by 16.5%.

The company’s adjusted EBITDA increased by 3.8% from the year-ago quarter to $784 million, while cash flow from operating activities improved to $836 million from $623 million.
 
Volume Analysis

Concho's average quarterly volume remained essentially unchanged year over year at 326 MBoe/d (64% oil). Total output exceeded the high end of the firm’s forecast of 316-325 MBoe/d.

Daily oil output was flat at 209 thousand barrels but went past the high end of the company's guidance, while natural gas production edged down 1.4% year over year to 699 million cubic feet (MMcf).

Realized Prices (Excluding Derivatives Effect)

The average realized natural gas price decreased from $2.64 per Mcf in the year-ago quarter to 79 cents. Meanwhile, average oil price realization came in at $45.85 per barrel, lower than $49.39 in the year-ago period. Overall, the company fetched $31.13 per Boe compared with $37.33 a year ago.

Operating Performance

The company reported an operating loss of $10.6 billion after incurring a $12.6-billion impairment charge. Operating expenses in the quarter amounted to $11.5 billion. A year ago, Concho recorded an operating loss of $846 million. However, as part of its efforts to improve costs and margins, the Midland, TX-based oil and gas producer succeeded in cutting its controllable expenses 11% year over year to $8.68 per Boe.

Balance Sheet

As of Mar 31, Concho had long-term debt of $4 billion, representing a debt-to-capitalization ratio of 32.1%.

Guidance

Concho Resources has decided to withhold detailed quarterly and annual guidance, citing the slump in commodity prices and market uncertainties related to the coronavirus pandemic. The company expects 2020 overall volumes to remain flat year over year as it looks to complete 110 to 130 gross wells for the remainder of this year while working with an average of eight rigs.

Further, Concho Resources has cut capital expenditure budget for 2020 by 40% to $1.6 billion from its original guidance of $2.7 billion due to current market conditions.

Concho is also targeting $100 million in operating and general and administrative cost reductions. The company’s controllable cash costs are expected to clock in below $9 per Boe, down from $9.44 in 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 43.66% due to these changes.

VGM Scores

Currently, Concho Resources has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 looks promising. Notably, Concho 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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