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Analysts Cut Price Target on Concho Resources

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Nov. 20 2020, Updated 2:36 p.m. ET

Analysts cut price target

On February 20, Concho Resources (CXO) fell 7.1%. On February 19, the company announced adjusted earnings of $0.94 per diluted share, a fall of 33.8% on a sequential basis and 15.3% below analysts’ consensus estimates. On February 21, Morgan Stanley (MS) and SunTrust Robinson reduced their target price on the stock by $19 and $10 to $135 and $150, respectively. Also, on February 20, Credit Suisse and Susquehanna reduced their price target on CXO to $147 and $132, respectively. On the same day, the stock closed at $112.45.

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Unexpected reduction in CXO’s capital expenditure

According to the company’s guidance, it will cut its capital expenditure to $2.9 billion in 2019, a fall of 17% compared to its earlier guidance. Oil production could rise by 15% between the last quarter and Q4 2019, 26 percentage points less than the year-over-year growth rate in the last year. The deceleration in CXO’s production growth rate comes at a time when the WTI Cushing-Midland spread has turned negative. Permian Basin oil producers usually suffer in this scenario. In 2019, CXO hedged 58.4% of its estimated oil production at a discount of $2.94 per barrel to WTI at Cushing.

CXO revenue estimates

According to Reuters estimates, in Q1 2019, CXO’s total revenue might fall just 2.5% compared to last quarter. However, Pioneer Natural Resources (PXD) and Apache (APA), other top producers in the Permian Basin, could see downside in total revenue of 48% and 12.4%, respectively, in this period. Apart from its moderate production growth rate, the lower outlook for natural gas prices is another worry for CXO stock. Last quarter, CXO operated with a production mix of 35.2% in natural gas.

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