Coterra Energy missed Wall Street’s revenue and earnings expectations within the second quarter. However, production volumes and, more importantly, money generation were above expectations. Revenue within the three months ended June 30 rose 7% year-over-year to $1.27 billion, but fell wanting the consensus forecast of $1.33 billion, in line with analyst estimates at LSEG. Adjusted diluted earnings per share fell 5.1% from the identical period a yr ago to 37 cents, missing expectations of 37 cents, in line with LSEG data. CTRA YTD Mountain Coterra Energy YTD Results were released after the market closed on Thursday. The post-earnings call was held Friday morning. In one other terrible overall market, the stock fell about 3.5% on Friday to just below $25 a share. Bottom Line In addition to strong production and tight capital spending discipline, management raised its production outlook and available money flow goal for the rest of the yr. Given strong execution and management’s ability to flexibly allocate resources between oil and natural gas depending on commodity conditions, we reiterate our Buy 1 rating on Coterra. However, we’re lowering our price goal by $2 per share to $28 as commodity prices have declined amid the economic slowdown. Coterra Energy Why We Own It: Formed from the merger of Cabot Oil & Gas and Cimarex, Coterra Energy is an exploration and production company with a high-quality, diversified asset portfolio. The company exercises capital discipline and is a low-cost operator. It is committed to returning 50% or more of annual free money flow to shareholders. Our only energy stock, Coterra, also serves as a hedge against inflation and geopolitical risk. Competitors: EQT Corp., Devon Energy, Marathon Oil Last Purchase: May 29, 2024 Start: April 14, 2022 Coterra paid out a complete of $295 million to shareholders within the second quarter – split between $155 million in declared dividends and $140 million from share buybacks. This represents 120% of the free money flow generated within the quarter and shows management’s seriousness and conviction in focusing more on money returns to shareholders than production growth at any cost. As a part of management’s stated commitment to pay out 50% or more of annual free money flow via dividends and buybacks, Coterra has paid out 103% of free money flow to shareholders this yr. At the tip of June, the Houston-based company had $1.3 billion left of its previous $2 billion authorization. The importance of return on capital for Coterra investors like us is obvious, because the 3.25% annual dividend yield rewards our patience with a stock that has significantly underperformed the broader market. Although we deal with oil production, crude oil prices, up lower than 4% this yr, have hardly helped, as natural gas prices have fallen greater than 20% year-to-date. In the post-earnings call, CEO Tom Jorden spoke in regards to the advantages of this selection. He said, “Although we saw a 42% decline in realized natural gas prices between the first and second quarters of 2024, our revenue declined only a modest 12%. This financial resilience gives us the ability to make sustainable long-term capital allocation decisions without being impacted by short-term commodity fluctuations. In a cyclical business, flexibility is key. The combination of our balanced revenue streams and our geographic and geological diversity gives us market flexibility. In addition, our inventory levels and lack of long-term service contracts allow us the luxury of focusing solely on the best capital allocation decisions. We can rotate between Marcellus, Anadarko and Permian depending on conditions and opportunities.” Full Year Guidance Available money flow is now expected at $3.2 billion (previously $3.1 billion, $3.22 billion expected), but management is leaving some wiggle room and has elected to reiterate each the capital expenditure range ($1.75 billion to $1.95 billion, $1.86 billion expected) and the free money flow goal ($1.3 billion, $1.45 billion expected). On the production side, management is now targeting total production of 645,000 to 675,000 barrels of oil equivalent per day (MBoepd). This is an upward revision to the lower end of the previous range of 635 to 675 MBoepd. The latest goal is correct in the center and consistent with expectations. Oil production of 105.5 to 108.5 MBoepd (previously 102 to 107 MBoepd), 106 MBoepd expected. Natural gas production of two,675 to 2,775 million cubic feet per day (narrowed from a variety of two,650 to 2,800 MMcfd), 2,751 MMcfd expected. Q3 total equivalent production guidance of 620 to 650 MBoepd, 647 MBoepd expected. Oil production of 107-111 MBopd, 108 MBopd expected Natural gas production of two,500-2,630 MMcfd, 2,659 MMcfd expected Capital spending of $450 million-$530 million, vs. expectations of $450 million. (Jim Cramer’s Charitable Trust is long CTRA. A full list of stocks could be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after he issues a trade alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim has discussed a stock on TV on CNBC, he waits 72 hours after the trade alert is issued before executing the trade. THE INFORMATION REGARDING INVESTING CLUB DESCRIBED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS AND WILL BE CREATED BY RECEIVING INFORMATION RELATED TO INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
In this photo illustration, a Coterra Energy Inc. logo is seen on a smartphone screen.
Pavlo Gonchar | SOPA images | LightRocket | Getty Images
Coterra Energy Wall Street’s expectations for sales and profits within the second quarter weren’t met. However, each production volumes and – more importantly – money generation were above expectations.
