Coterra Energy posted a mixed quarter, but delivered beats where it matters most
Coterra Energy on Thursday delivered mixed third-quarter results for sales and earnings. However, production volumes and cash generation — the latter being what the Street really cares about — came in ahead of expectations. Revenue in the three months ended September 30 was essentially flat versus the year ago period at $1.36 billion but did manage to outpace the $1.3 billion consensus forecast, according to analyst estimates compiled by LSEG. Adjusted diluted earnings per share fell 36% versus the year-ago period to 32 cents and missed expectations of 34 cents, LSEG data showed. The results were released after Thursday’s close. The post-earnings conference call was held Friday morning. Coterra Energy Why we own it: Formed by the merger of Cabot Oil & Gas and Cimarex, Coterra Energy is an exploration-and-production company with a high-quality, diversified asset portfolio. The company practices capital discipline and is a low-cost operator. It’s committed to returning 50% or greater of annual free cash flow to shareholders. Our lone energy stock, Coterra also acts as a hedge on inflation and geopolitical risk. Competitors: EQT Corp ., Devon Energy , Marathon Oil Last buy: Oct. 1, 2024 Initiation: April 14, 2022 Bottom line Though sales and discretionary cash flow results came up short, management’s strict adherence to cost discipline allowed for beats where it counts: on earnings and free cash flow generation. However, shares are moving lower Friday after management cut its discretionary cash flow outlook for the remainder of the year. To a large extent, this is out of management’s control and at the mercy of energy prices. The team is demonstrating strong execution on factors within its control by simultaneously reducing its capital expenditures outlook for the full year while raising the production outlook for the remainder of this year. Coterra returned a total of $265 million to shareholders in the third quarter — split between $154 million in declared dividends and $111 million coming from share repurchases — amounting to about 96% of free cash flow generated in the quarter. So far this year, Coterra has returned 100% of its free cash flow to shareholders. At the end of September, the company had $1.2 billion remaining under its previous $2 billion authorization. As a reminder, management’s stated commitment is to return 50% or more of annual free cash flow via dividends and buybacks. We’re not looking to add to our own position now, but do believe the company is operating effectively on the factors in its control, reallocating resources between natural gas production and oil production based on their price swings. Daniel Guffey, vice president of finance, planning & analysis said on the call: “2025 promises to deliver a more constructive natural gas market. The combination of growing LNG exports, increased electrical generation demand and the prospect of winter weather suggests a tighter supply demand picture for natural gas in 2025 and beyond. In the meantime, we have other assets that are generating superior returns in our investments, and we have pivoted to them in 2024.” We’re looking for a bigger decline from our prior purchase at around $24.45 before stepping in to scoop more, but reiterate our 1 rating and $28 price target. This is one of the strongest operators in the energy sector. Fourth-quarter guidance Total equivalent production of 630 to 660 MBoepd (thousand barrels of oil equivalent per day), 652 MBoepd expected. Oil production of 106 to 110 MBopd (thousand barrels of oil per day), 111 MBopd expected. Natural gas production of 2,530 to 2,660 MMcfd (million standard cubic feet per day), 2,6638 MMcfd expected. Capital expenditures of $410 million to $500 million, versus expectations of $449 million. Full-year guidance The team’s discretionary cash flow target was cut to $2.9 billion, down from $3.2 billion previously. $3.07 billion was expected. The capex forecast was reduced to a range of $1.75 to $1.85 billion, a cut at the upper end from the prior range of $1.75 to $1.95 billion. That compares to expectations of $1.87 billion. As a result of the updates to discretionary cash flow and capex, free cash flow is now expected to come in at $1.1 billion, at the midpoint, slightly below the $1.16 billion expected. As for production, management is now targeting total equivalent production per day of 660 to 675 MBoepd), which represents an increase at the low end from the prior range of 645 to 675 MBoepd. The new target is ahead of the 662 MBoepd expected, at the midpoint. Oil production is now expected to be in the range of 107 to 108 MBopd, an increase at the midpoint versus the prior range of 105.5 to 108.5 MBopd and compares to an estimate of 107.7 MBopd. Natural gas production is now expected to be between 2,735 and 2,775 MMcfd, an increase at the low end from the prior range of 2,675 to 2,775 MMcfd, and ahead of the 2,744 MMcfd expected. (Jim Cramer’s Charitable Trust is long CTRA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
An oil pump jack is shown in a field on June 28, 2024 in Nolan, Texas.
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Coterra Energy on Thursday delivered mixed third-quarter results for sales and earnings. However, production volumes and cash generation — the latter being what the Street really cares about — came in ahead of expectations.