Technology

QEP Resources (QEP) Down 17.3% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for QEP Resources (QEP). Shares have lost about 17.3% in that time frame, underperforming the S&P 500.

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

QEP Resources Reports Wider-Than-Expected Q2 Loss

QEP Resources, Inc. delivered soft second-quarter 2020 resultsdue weak oil price realizations. The upstream player’s net oil price realization of $21.72 per barrel (excluding hedges) fell shy of the Zacks Consensus Estimate of $54 per barrel. It even fell from the year-ago figure of $55.46.

The company’s adjusted net loss per share of 6 cents was wider than the Zacks Consensus Estimate of a loss of 2 cents and also from the year-ago loss of 4 cents. Moreover, quarterly revenues of $120.6 million lagged the Zacks Consensus Estimate by 43.57%. Also, the top line deteriorated 59.3% from the year-ago sales of $296.2 million.

Volume Analysis

Production of crude and natural gas totalled 7,972.9 thousand barrels of oil equivalent (MBoe)(68.5% oil and condensate), up 5.8% from the year-ago figure of 7,534.7Mboe, primarily reflecting the expanded production volumes in the Permian Basin.

Natural gas volumes substantially increased 13% year over year to 8.1 billion cubic feet (Bcf) while natural gas liquids output dropped2% to 1,164.6 thousand barrels (Mbbl). Oil volumes improved from 5,150.3Mbbl in second-quarter 2019 to 5,458.5Mbbl in the quarter under review.

Moreover, the company’s Permian Basin production from the area rose 20% year over year to a record 5,453.2Mboe– accounting for 68.4% of the total output. Investors should know that QEP Resources allocated bulk of its 2019 capital budget to this lucrative basin as it aims at transforming itself into a Permian pure play.

Realized Prices (Excluding Derivative Impact)

QEP Resources’ net realized natural gas price in the quarter was $1.08 per thousand cubic feet, up7% from the year-ago level of $1.01. However, The the realized price also fell shy of the Zacks Consensus Estimate of $1.36 per Mcf of gas. Net oil price realization declined 60.5% year over year to $21.72 per barrel and was also below the Zacks Consensus Estimate of $54 per barrel. Finally, net NGLs price realization plummeted 54.9% from the second quarter of 2019 to $5.44 per barrel.

Costs, Capex and Balance Sheet

Total operating expenses in the quarter decreased significantly to $233.1 million from $241.7 million a year ago. Moreover, QEP Resources’ second-quarter lease operating expenses came in at $28.8 million, down 37% from the same quarter last year, while general and administrative costs fell 16.5% year over year. Capital investment excluding acquisitions decreased 78.5% year over year to $36.6 million in the second quarter, mainly due considerably lowering development in both the Permian and Williston basins resulting from the oil price plunge.

As of Jun30, 2020, QEP Resources had $3.4 million in cash and cash equivalents. The company’s long-term debt was $1,589.4 million, representing a debt-to-capitalization of 35.8%.

2020 Guidance

In response to the coronavirus-induced sudden oil price slump, QEP Resourcesis taking steps to rationalize its planned activities and capital spending for the current year.

Amid the growing crisis, this Denver, CO-based company reduced its 2020 capital expense guidance and now expects it in the $340-$380 million range compared to the prior guided range of $545-$595 million. Moreover, the independent energy player anticipates generating free cash flow of a minimum of $150 million in the ongoing year.

The company also lowered its 2020 production guidance and now anticipates it in the 28.1-29.6 million barrels of oil equivalent (MMboe) compared to the earlier guided range of 31.5-33.7 MMboe.

QEP Resources has also revised its operating expenses view. It projects it lease operating expenses in the range of $5.00-$5.30 per barrels of oil equivalent(Boe) while its general and administrative expenses are estimated in the $85-$90 million band. The earlier ranges were $5.20-$5.80 per Boe and $85-$95 million, respectively.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -47.37% due to these changes.

VGM Scores

Currently, QEP Resources has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. 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 B. 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 these revisions indicates a downward shift. It's no surprise QEP Resources has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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