Concho Resources (CXO) Update - August 2
Posted: Fri Aug 02, 2019 9:35 am
Comments below are from Stifel
Concho Resources Inc. (CXO, $75.97, Buy; Target $188.00) by Derrick Whitfield
Defending CXO as yesterday's sell-off implies a $3.2B event
In our view, CXO is oversold on fundamental and technical measures. CXO began earnings as a quality stock with a mild execution overhang (elevated Q119 capex) and exited Q219 with a modest execution overhang (one large-scale project misstep and elevated 1H19 capex). We believe CXO’s 1H19 execution issues are explainable and addressed by management's noted actions (integrated learnings, decelerated 2H19 activity). We estimate investors have priced in a $3.2B asset impairment as a result of one suboptimal density pilot that costs $100mm. Fundamentally, CXO trades at a considerable discount to peers on cash flow, acreage, and P/NAV measures despite offering superior capital efficiency metrics and arguably the most sought after Permian acreage position. Technically, CXO has the lowest RSI within its peer group at ~19%. Currently, we believe the fair value for CXO is ~20% higher on a relative basis.
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MY TAKE is that yesterday's selloff was triggered by one large fund sale that resulted in a cascade of computer generated stock sales. Lots of fund managers tighten up their stop loss orders prior to quarterly results. I have adjusted my forecast/valuation model for Concho's lower production guidance. My valuation is now $124/share.
In addition to Stifel, four other firms have issued new reports on CXO since they released Q2 results.
They all rate it a BUY with price targets of $100, $140, $150 and $155.
Concho Resources Inc. (CXO, $75.97, Buy; Target $188.00) by Derrick Whitfield
Defending CXO as yesterday's sell-off implies a $3.2B event
In our view, CXO is oversold on fundamental and technical measures. CXO began earnings as a quality stock with a mild execution overhang (elevated Q119 capex) and exited Q219 with a modest execution overhang (one large-scale project misstep and elevated 1H19 capex). We believe CXO’s 1H19 execution issues are explainable and addressed by management's noted actions (integrated learnings, decelerated 2H19 activity). We estimate investors have priced in a $3.2B asset impairment as a result of one suboptimal density pilot that costs $100mm. Fundamentally, CXO trades at a considerable discount to peers on cash flow, acreage, and P/NAV measures despite offering superior capital efficiency metrics and arguably the most sought after Permian acreage position. Technically, CXO has the lowest RSI within its peer group at ~19%. Currently, we believe the fair value for CXO is ~20% higher on a relative basis.
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MY TAKE is that yesterday's selloff was triggered by one large fund sale that resulted in a cascade of computer generated stock sales. Lots of fund managers tighten up their stop loss orders prior to quarterly results. I have adjusted my forecast/valuation model for Concho's lower production guidance. My valuation is now $124/share.
In addition to Stifel, four other firms have issued new reports on CXO since they released Q2 results.
They all rate it a BUY with price targets of $100, $140, $150 and $155.