Concho Resources Inc. CXO boasts a stable business model. Though the stock has lost 38.2% in the past year, it has a strong potential to grow in the near term. The firm should be included in investors’ watchlist.
While the unprecedented demand destruction due to coronavirus and the sector’s extreme volatility are responsible for the understandable reluctance on investors’ part to bet on the energy stocks, Concho Resources not only seems to be holding up okay, it’s expected to emerge from the current downturn relatively unscathed.
Let’s assess the factors why Concho Resources has enough momentum to carry on with.
What Makes It a Promising Pick?
Top Rank & Attractive VGM Score
This independent oil and gas exploration & production company, with its primary focus on the Permian Basin, currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 offer the best investment opportunities. Thus, the company appears to be a compelling investment proposition at the moment. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Stellar Q2 Performance
Concho Resources reported second-quarter 2020 net income per share (excluding special items) of $1.13, outperforming the Zacks Consensus Estimate of 33 cents as well as the prior-year period’s earnings of 69 cents. The company’s bottom line was favorably impacted by better-than-expected daily production volumes. Precisely, this upstream player’s output of 319 thousand barrels of oil equivalent per day (MBoe/d) surpassed the Zacks Consensus Estimate of 310.1 MBoe/d.
Northward Estimate Revisions
The direction of estimate revisions serves as a key indicator when it comes to stock price performance. The Zacks Consensus Estimate for Concho Resources’ 2020 earnings has been revised 80.3% upward over the past 60 days. Earnings estimates for 2021 have also moved 78.3% north during the same period.
Positive Earnings Surprise History
This Midland, TX-headquartered Concho Resources has a decent surprise record. While its earnings surpassed the Zacks Consensus Estimate in two of the preceding four quarters, the same met and missed the mark on two occasions, the average beat being 67.15%.
Strong Balance Sheet
The company exited the second quarter with cash and cash equivalents of $320 million, improving from the sequential quarter’s level of $165 million. It’s debt to capitalization as of the second-quarter end was 33.3%.
Concho Resources is known for its strategic acreage position in the low-cost Permian Basin. The buyout of RSP Permian bolstered its presence in the region, thereby lifting its output prospects. As a result, the company expects oil production to remain unchanged in 2020 despite lowering 40% of its capital budget projection.
Its cost-reduction efforts have been encouraging. For the current year, Concho Resources trimmed its capital expenditure view by 40% to $1.6 billion from its original guidance of $2.7 billion after reckoning the ongoing crash in commodity prices. Moreover, for the present year, the company predicts its controllable costs to stay below $8.50 per Boe. This, in turn, is expected to aid its earnings and cash flows.
Also, its current ratio (liquidity ratio that measures whether a firm has enough resources to meet its short-term obligations) of 1.80 is very healthy and the company has still got $2 billion in unused credit facility. Concho Resources has no near-term maturities. Therefore, the company seems to be in a decent financial position to overcome the oil price crisis.
Other Key Picks
Other top-ranked stocks in the energy space includeMurphy USA Inc. MUSA, Laredo Petroleum, Inc. LPI and SilverBow Resources Inc. SBOW, each presently sporting a Zacks Rank of 1.
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Concho Resources Inc. (CXO) : Free Stock Analysis Report
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