Concho Resources (CXO) Q4 Results

[dan_s]

Here is an example of a company that "Under-Promises and then Over-Delivers".

Concho Resources Inc. (CXO) (the “Company” or “Concho”) today reported financial and operating results for fourth-quarter and full-year 2017.

Fourth-Quarter & Full-Year 2017 Highlights

For fourth quarter, delivered crude oil production of 130 MBopd and total production of 211 MBoepd, exceeding the high end of the Company’s guidance range.

For 2017, grew crude oil production 29% and total production 28% on a $1.7 billion capital program, excluding acquisitions, which was fully funded by cash flows from operations.

Reported fourth quarter net income of $267 million, or $1.79 per diluted share. Adjusted net income totaled $98 million, or $0.66 per diluted share (non-GAAP). For 2017, net income totaled $956 million, or $6.41 per diluted share, and adjusted net income was $311 million, or $2.09 per diluted share (non-GAAP).

Generated $513 million of EBITDAX (non-GAAP) in the fourth quarter and $1.9 billion for 2017.

Delivered outstanding results from the Company’s large-scale development projects in the Northern and Southern Delaware Basin and in the Midland Basin.

Increased estimated proved reserves 17% to 840 MMBoe, driven by a 26% increase in proved developed reserves to 588 MMBoe.

Achieved a 275% reserves replacement ratio at $8.68 per Boe proved developed finding costs.

2018 Outlook & Recent Events

For 2018, expecting crude oil production growth of approximately 20% and total production growth of 16% to 20% on a $2 billion capital program at the midpoint. The capital program is consistent with Concho’s strategy of delivering returns-based, capital-efficient growth within cash flows from operations.

Provided new three-year production growth outlook of 20% CAGR over the 2017 to 2020 time period.

Enhanced asset position and accelerated value realization with recent portfolio management actions. Divestiture proceeds of $280 million reinforce balance sheet strength and flexibility. Strategic asset trade enhances core leasehold in Midland Basin and New Mexico Shelf.

Tim Leach, Chairman and Chief Executive Officer, commented, “The fourth quarter was an excellent end to a great year for Concho. Our operational and financial performance demonstrated our ability to consistently execute, control costs and capitalize on opportunities that strengthen our competitive position. For the year, crude oil production exceeded our target, increasing 29% year-over-year, and our disciplined capital program was fully funded by operating cash flow. We have a powerful portfolio that continues to outperform. The depth and quality of our resource base is unmatched throughout our history and allows us to assemble multi-year programs capable of delivering premium value within cash flow. We continue to complement our development program with active portfolio management that accelerates value and improves capital efficiency. Our high-quality resource base, scale advantage and execution strength uniquely position Concho to navigate a dynamic operating environment while maximizing returns and building sustainable value for our shareholders.”

[dan_s]

In the last 3 months, 15 ranked analysts set 12-month price targets for CXO. The average price target among the analysts is $173.07. Price targets range from $154 to $200.

My valuation increases by $12 to $184/share.

CXO should generate about $300 million of free cash flow from operations this year, compared to Devon which should generate over $1 Billion of free cash flow.

I am using a multiple of 12X CFPS to value CXO and a multiple of only 8X CFPS to value DVN. The reason is that CXO says they will grow production by 20% YOY for the next three years and they have a good habit of "under-promising and over-delivering", which Wall Street loves.

Wall Street says that they want upstream companies to generate free cash flow, but it seems like the companies with more aggressive growth plans are getting the "love".