Better Earnings Impacted PXD’s Volatility and Returns


Nov. 20 2020, Updated 5:07 p.m. ET

Returns of upstream stocks with high implied volatilities

As we saw in the previous part of this series, on February 10, 2017, Cobalt International Energy (CIE) had the highest implied volatility among the upstream stocks that are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Its stock fell ~65.1% in the last year—the only loser among upstream stocks with the highest implied volatilities. In the last five trading sessions, the stock fell 15.3%.

Stocks that move sharply usually experience rises in volatility, which could explain Cobalt’s high implied volatility—as you can see in the above table. High implied volatility stocks moved sharper in the last year and in the last few days.

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Among the high volatility companies, Denbury Resources (DNR) rose the most in the last five days, while Cobalt International Energy (CIE) lost the most. On January 30, 2017, Cobalt International Energy stock fell 8%. On the same day, Carlson Capital LP disclosed that it owns a 6.9% stake in Cobalt International Energy. Between January 30 and February 8, 2017, the stock has been in a downturn.

Cobalt International Energy reported an operating loss of $199.6 million in 3Q16—compared to an operating loss of $36.5 million in 3Q15. It fell the most in the last one year.

Sanchez Energy (SN) rose the most in the last year on our list of high implied volatility upstream stocks. In the last four quarters, its revenue rose 2.6%. It incurred an operating loss of $52.2 million in 3Q16—compared to an operating loss of $488.5 million in 3Q15. Sanchez Energy’s operating profit margin is -9.1%—compared to the industry median of 4.1%.

Low implied volatility upstream stock

Noble Energy (NBL) fell the most in the last five days among the list of low volatility upstream companies. It fell 2.7% on February 7, 2017.  Noble Energy is expected to announce its 4Q16 earnings results on February 14, 2017. Analysts expect the company to report a loss of $0.10 per share.

Among the low volatility companies, Pioneer Natural Resources (PXD) rose the most in the past five days and the last year. On February 7, 2017, it announced its 4Q16 earnings results. It reported an adjusted EPS, excluding a one-time item, of $0.49—compared to estimates of $0.33.

The stock rose 11.5% between February 7, 2017, and February 10, 2017. Its implied volatility fell 10.5% during this time period. After its earnings results, brokerage firms such as Barclays, Canaccord Genuity, Wunderlich, Simmons, and Credit Suisse increased their targets on the stock.

In the final part of this series, we’ll look at the upstream stocks with the highest short interest-to-equity float ratios. High short interest can reflect expectations of large downsides in stocks.


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