Concho Resources: Note from Stifel on Feb 20

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Concho Resources: Note from Stifel on Feb 20

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From Derrick Whitfield at Stifel on 2/20/2019:
Concho Resources Inc. (CXO, $121.00, Buy; Target $262.00) - Demonstrates strong capital efficiency in 2019/2020 outlooks and 2018 resource update
We view the quarter and year-end release as slightly positive. The positives include: i) in-line Q418 production on lower than expected capex, ii) solid reserves (growth, mix) and resource (33% increase in premium resource) update, iii) strong capital efficiency implied in 2019 (bopd down ~6%, capex down ~11%) and 2020 (bopd down ~8%, capex down ~22%) guidance, iv) impressive IP30/k-ft rates in the Midland Basin (company record). The negatives include: i) slight miss on Q418 oil volumes (0.6% below consensus) and EBITDA (7.2% below consensus), and ii) weaker than expected Q119 production guide (implied oil is 6.6% below consensus). We caution investors to note the EBITDA miss was likely due to oil and gas realizations. Net-net, we believe the strength of the 2019/2020 outlook and reserve/resource outlook should outweigh Q418/Q119 concerns. Also, we believe the $2.8-3.0B capital plan is far better (lower) than buy-side consensus expectations.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Concho Resources: Note from Stifel on Feb 20

Post by dan_s »

TPH Comments below:

CXO Q4'18 Quick Look

Mixed bag on messy Q4, but substantial FCF inflection in 2020 likely focus for LT investors

Sector: NAm E&P | Ticker: CXO | Recommendation: BUY | Target: $158 | Close: $121.00

Q4 capex / Q1 guide may weigh on shares early, but 2020 FCF inflection of TPHe ~$1.1B (~5% FCF yield) while growing oil a strong +15% e/e rate in '20 makes this a top tier asset to own in the sector. Q4'18 production of 307mboepd (199mbpd oil) is ~in-line with TPHe/Street ~308mboepd (200 oil), but capex comes in hot at ~$925MM vs. TPHe $848MM / Street $809MM; Clean EPS of 94c misses TPHe/Street $1.13/$1.11 on realizations. Q1 guidance of 300-306mboepd (TPHe 312 / Street 320) for $825-875MM (TPHe $849MM / Street $747MM) of capex is due to spending on large pads that add production in Q2. More importantly is the updated 2-year guide targeting $2.8-$3.0B of capex which is expected to generate +26-30% y/y oil growth (+21-25% y/y overall growth) in 2019 and a 2-yr oil CAGR of +23% (2-yr overall CAGR +19%) vs. prior guide of +35-40% y/y oil growth (+25-30% y/y overall growth in 2019 and a 2-yr oil CAGR of +30% (2-yr overall CAGR of +25%). We'll be listening for details on usage of FCF and the potential for incremental shareholder returns moving dividend yield towards S&P yield (TPHe).
Dan Steffens
Energy Prospectus Group
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