Why Shares of EOG Resources Plunged 14.5% in February

What happened

After gaining more than 2% in the first month of 2023, shares of EOG Resources (NYSE: EOG) headed in the opposite direction last month. According to data from S&P Global Market Intelligence, shares of EOG Resources tumbled 14.5% in February.

In addition to disappointment with the company's fourth-quarter 2022 earnings report, investors felt compelled to click the sell button in response to the upstream oil and gas company's 2023 forecast, a report that oil inventories were rising, and bearish sentiment from Wall Street regarding the company's stock.

So what

Failing to meet analysts' consensus earnings per-shares estimate of $3.37, EOG Resources reported fourth-quarter 2022 adjusted EPS of $3.30. Besides the miss at the bottom of the income statement, the company's cash flow statement may have inspired others to act. Whereas EOG Resources reported free cash flow of $2.27 billion in Q3 2022, it generated $1.73 billion in Q4 2022. Comparing the company's results on a year-over-year basis also indicates a declining performance; EOG Resources reported free cash flow of $2.05 billion in Q4 2021.

Besides its previous performance, the company's 2023 guidance may have also moved investors to act. Management forecasts cash operating costs per barrels of oil equivalent of $9.92 to $11.37. Should the company report cash operating costs at the midpoint of this guidance, $10.65 per barrels of oil equivalent, it would result in consistent years of rising costs. In 2021 and 2022, EOG Resources reported cash operating costs of $10.14 and $10.52.

It wasn't only the company's financials that affected investors last month though. In the middle of the month, the Energy Information Administration reported that U.S. crude oil inventories had been rising significantly. This probably signaled to energy investors that demand was waning -- a concerning sign for an exploration and production company like EOG Resources.

Pessimism from Wall Street also added to investors' concerns. On Feb. 22, Jeanine Wai, an analyst at Barclays, cut the price target on shares of EOG Resources to $145 from $152. On the same day, Credit Suisse reduced its price target to $155 from $160.

Now what

While there seemed to be a lot of fodder for the bears to feast on last month, prospective -- and current -- investors should recognize that none of the factors feeding into the selling frenzy reveal something fundamentally concerning about the company. In fact, with shares currently valued at 6.4 times operating cash flow, a discount to its five-year average cash flow multiple of 7.7, investors looking to energize their portfolios with a leading oil and gas dividend stock may want to give EOG Resources a serious look.

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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends EOG Resources. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.

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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