Concho Resources (CXO)

[dan_s]

Stifel rates it a BUY with a $109 price target. Here is what they said this morning. - Dan

Earnings Preview
CXO will report 4Q15 earnings after the market close on 2/24/16 and will host a
conference call the following day at 9:30 a.m. EST. We project 4Q15 EPS/CFPS of
$0.11/$2.71 compared to Street consensus of $0.03/$2.70. Our 4Q15 production
forecast of 141 MBoe/d (65% liquids) at the mid-point of guidance of 139 to 143
MBoe/d, 2% below consensus of 143 MBoe/d, and implies a decline of 6% from
3Q15 and growth of 13% y/y.
Anticipating Another Cut to 2016 Budget
On 11/05/2015, CXO announced a preliminary 2016 budget of $1.4B including
$1.2B for drilling and completion activities. This plan contemplated running 13 rigs
(8 NDB, 2 SDB, 1 NM Shelf, and 2 Midland Basin), maintaining flat production y/y,
and spending within cash flow based on NYMEX oil/gas prices of $50/$2.50.
Following a 33%/9% oil/gas price decline, the company is currently running 11 rigs
(7 NBD, 2 SDP, 1 NM Shelf, and 1 Midland Basin). Consequently, we look for
management to lower the 2016 budget to approximately $1.2B (down 45% y/y) and
production growth guidance to -3%.
YE15 results should include an acreage update and a positive revision to the YE14
horizontal drilling inventory of 14,300 (9,800 NDB, 800 SDB, 1,600 NM Shelf, and
2,100 Midland Basin). On the heels of three 1Q16 transactions, we look for the
2016 plan to include more Wolfcamp delineation drilling in the North Harpoon area
of the SDB.
Expecting Proved Reserves Flat to Down
We anticipate YE15 proved reserves will be flat to down from YE14 as price-driven
revisions offset reserve additions. We look for the SEC PV10 to decline 55%-60%
y/y. The PUD% is likely to decline from the YE14 level of 41%.
Improved Productivity
Bone Spring and Wolfcamp well productivity in the NDB is improving as is the
Wolfcamp in the SDB. Most of the 2015 improvement was attributable to longer
laterals while the largest gains in rates/lateral ft increased in 2H14 in most areas.
Strong Balance Sheet
Based on a capex estimate of $1.2B, including $100mn for acquisitions, we project
debt/TTM EBITDA of 0.8x at YE16 compared to 1.3x at YE15 and 2016 interest
coverage of 8.9x.