EOG Resources (EOG) Down 40% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for EOG Resources (EOG). Shares have lost about 40% in that time frame, underperforming the S&P 500.

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

EOG Resources Q4 Earnings Beat Estimates, Reserves Grow

EOG Resources delivered fourth-quarter 2019 adjusted earnings per share of $1.35, beating the Zacks Consensus Estimate of $1.16. The bottom line also increased from the year-ago quarter’s $1.24.

Total revenues in the reported quarter declined 5.6% year over year to $4,320.3 million. Moreover, the top line lagged the Zacks Consensus Estimate of $4,374 million.

The strong quarterly earnings were aided by higher oil equivalent production volumes and lower lease and well operating expenses. This was partially offset by a drop in price realizations of commodities.

Dividend Increase

The company got approvals from the board of directors to increase quarterly dividend by 30% to 37.5 cents per share. The new dividend will likely be paid on Apr 30, to stockholders of record as of Apr 16.

Operational Performance

In the quarter under review, EOG Resources’ total volume rose 11% year over year to 78.2 million barrels of oil equivalent (MMBoe).

Crude oil and condensate production in the quarter totaled 468.9 thousand barrels per day (MBbl/d), up 8% from the year-ago quarter level. Natural gas liquids (NGL) volume increased 17% year over year to 144 MBbl/d. Natural gas volume rose to 1,425 million cubic feet per day (MMcf/d) from the year-earlier quarter’s 1,236 MMcf/d.

Average price realization for crude oil and condensates fell 4% year over year to $57.13 per barrel. Quarterly NGL prices declined 31% to $16.23 per barrel from $23.54 a year ago. Moreover, natural gas was sold at $2.36 per thousand cubic feet (Mcf), representing a year-over-year decline of 31%.

Operating Costs

Lease and Well expenses declined to $334.5 million from $346.4 million a year ago. However, transportation costs increased to $208.3 million from $196.1 million a year ago. Moreover, the company reported higher Gathering and Processing costs at $127.6 million as compared to the year-ago quarter’s $112.4 million.

Liquidity Position

At the end of the fourth quarter, the company had cash and cash equivalents of roughly $2,028 million and long-term debt of $4,160.9 million. This represents a net debt-to-capitalization ratio of 19.3%.

In the quarter, the company generated $2.1 billion in discretionary cash flow, improving 2% year over year.

Reserves Grow

As of Dec 31, 2019, the energy explorer reported net proved reserves at 3,329 million barrels of oil equivalent (MMBoE), representing a year-over-year increase of 14%.

Guidance

For exploration and development operations, EOG Resources has decided to invest capital in the range of $6.3 billion to $6.7 billion in 2020. The company expects this capital budget to aid oil production growth of 10% to 14% in 2020.

Notably, for booting crude volumes in 2020, the company has decided to allocate lesser capital as compared to 2019 primarily owing to the weak pricing scenario of the commodity. The company added that the year-over-year capital allocation for potential drilling will be raised in 2020.

The company also revealed its intention of completing roughly 800 net wells in 2020, up from the 2019 figure of 750 net wells.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -25.49% due to these changes.

VGM Scores

Currently, EOG Resources has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 EOG Resources has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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