Why Is Cimarex (XEC) Down 62.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Cimarex Energy (XEC). Shares have lost about 62.2% in that time frame, underperforming the S&P 500.

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

Cimarex Energy Q4 Earnings Misses Estimates

Cimarex Energy reported fourth-quarter 2019 earnings per share of $1.18 cents, missing the Zacks Consensus Estimate of $1.24 and declining from the year-ago quarter’s $2.01.

Total revenues of $657.2 million beat the Zacks Consensus Estimate of $611 million and increased from the year-ago quarter’s $624.1 million.

The weak earnings can be attributed to lower natural gas and NGL price realizations, as well as higher operating costs. This was partially offset by increased production volumes and higher crude realized prices.

It is to be noted that the company increased quarterly dividend by 10% to 22 cents. It will be payable on Jun 1, to its shareholders of record as of May 15, 2020.

Proved Reserves

Cimarex Energy reported proved reserves — as of Dec 31, 2019 — of 620 million barrels of oil equivalent (MMBOE), up from 591.2 MMBOE in 2018. The company reported reserve replacement ratio of 121%.

Operational Highlights

Production Rises

In the quarter under review, total production averaged 292.7 thousand barrels of oil equivalent per day (MBOED), up from 251.3 MBOED in the year-ago period on considerably higher activities in the Permian Basin. Output from the basin surged 40.5% year over year to 207.1 MBOED. It is currently operating 10 drilling rigs in total.

Total oil volumes rose to 92.1 thousand barrels per day (MBbls/d) from 79.9 MBbls/d in the year-ago period. Moreover, natural gas production increased to 732.6 MMcf/d from the year-ago level of 621.9 MMcf/d. Natural gas liquids (NGL) volumes jumped to 78.6 MBbls/d from the year-ago figure of 67.7 MBbls/d.

Realized Prices

While realized price of crude oil rose from $49.30 per barrel to $54.80, the same for NGL fell 31.8% year over year to $14.13. Realized prices for natural gas plunged 44.9% to $1.19 per thousand cubic feet.

Costs and Expenses

Overall costs and expenses in the quarter surged to $1,142.4 million from the year-ago level of $217 million, primarily due to impairment charges and higher production, transportation and processing costs. Notably, production expense in 2019 was recorded at $3.34 per BOE, down 8% from the 2018 figure.

Financial Condition

As of Dec 31, 2019, the company had cash and cash equivalents of $94.7 million. Net long-term debt was almost $2 billion, which represents a debt-to-capitalization ratio of nearly 37%.

Cimarex's adjusted cash flow from operating activities totaled $416 million, down from $428.2 million in the prior-year quarter. The company spent $252.3 million on exploration and development in the December quarter.

Guidance

Cimarex projects total production for the March quarter of 2020 in the range of 272-288 MBOED. The company also issued its projection for 2020 oil equivalent production in the band of 270-286 MBOED. Crude oil production for the year is expected in the range of 91-97 MBbls/d.

For 2020, the company expects total capital investment in the range of $1,250-$1,350 million. It had invested $1,315 million a year ago. Cimarex is expected to invest $100 million in midstream operations in 2020, indicating a decline from the 2019 level of $149 million. Investment in drilling and completion is expected in the range of $950-$1,050 million.

Production expense per BOE is expected in the range of $3.10-$3.60 for 2020. The metric was recorded at $3.34 in 2019.

Assuming WTI crude price at $50 per barrel and NYMEX gas price at $2.25, the company expects its operations to generate strong free cash flows.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -26.09% due to these changes.

VGM Scores

At this time, Cimarex has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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. Notably, Cimarex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.