Club holdings Coterra Energy (CTRA) and Pioneer Natural Resources (PXD) delivered fourth-quarter earnings beats Wednesday. But we’ll be watching for how the market responds to higher capital expenditure outlooks and lower quarterly dividends for both of these Texas-based oil-and-gas firms. Coterra’s total revenue increased 2.5% year-over-year, to $2.28 billion, beating analysts’ forecasts of $2.11 billion, according to estimates compiled by Refinitiv. Coterra’s adjusted diluted earnings-per-share (EPS) grew 40% compared with the year prior, to $1.16 a share, narrowly beating expectations for EPS of $1.10, Refinitiv data showed. Pioneer’s total revenue increased 18% year-over-year, to $5.10 billion, beating analysts’ forecasts of $3.53 billion, according to Refinitiv. Pioneer’s adjusted diluted EPS grew 29% on an annual basis, to $5.91 a share, topping expectations for EPS of $5.77, Refinitiv data showed. Note : Both companies are scheduled to host their earnings conference calls with analysts and investors Thursday at 10:00 a.m. ET. Bottom line Solid production and pricing, coupled with low costs, helped both companies deliver fourth-quarter results ahead of expectations. But with investors looking ahead to 2023, Coterra and Pioneer could both see their stock prices come under pressure over concerns about lower dividends on a sequential basis and higher capital expenditures in 2023 — as was the case with Club holding Devon Energy (DVN) last week. That move prompted us to reduce our exposure to any potential post-earnings downside by trimming Coterra and Pioneer late last week. However, given last week’s energy sell-off some of the dividend news may have already been priced into their share prices. After a strong 2022, energy stocks have stumbled out of the gate this year, tracking the declines in the underlying commodities. West Texas Intermediate crude — the U.S. oil benchmark — has fallen about 7.5% this year, to hover around $74 a barrel, while natural gas has seen its value come down by more than half, to around the low $2-per-cubic-foot level. We’ll look for more color on both companies’ 2023 frameworks tomorrow on their conference calls. For the moment, we reiterate 2 ratings on both firms. In afterhours trading Wednesday, Coterra was trading up more than 2%, at $23.80 a share, while Pioneer was up nearly 1%, at $207.11 a share. Capital allocation Coterra Energy said its upcoming quarterly fixed-plus-variable dividend will be 57 cents a share — factoring in a base dividend of 20 cents a share and a variable of 37 cents a share — compared with 68 cents per share in the prior quarter. Still, the new annualized payment represents a hefty 9.8% dividend yield based on Coterra’s closing price of $23.26 on Wednesday. Coterra also increased its annual base dividend to 80 cents per share from 60 cents, while announcing a new $2 billion share repurchase program. The company continues to target returning 50% or more of its free cash flow to shareholders, but its new priorities are to pay out the higher base dividend first, repurchase stock second, and pay variable dividends third. The decision to put more emphasis on share repurchases instead of variable dividends makes sense given the stock’s weak performance since June of last year. Management currently expects the company will generate $1.9 billion of free cash flow in 2023. After funding the base dividend, at least $400 million would be left over for additional shareholder returns. Pioneer said its upcoming quarterly fixed-plus-variable dividend will be $5.58 a share — factoring in a base dividend of $1.10 a share and a variable of $4.48 a share — compared with $5.71 per share in the prior quarter. But the annualized dividend yield based on Pioneer’s closing price of $205.27 Wednesday provides shareholders with a significant 10.87% yield, making it still one of the highest yielding companies in the S & P 500 . Pioneer also continues to make headway on its share repurchase program. The company bought back $400 million worth of stock in the fourth quarter and said Wednesday it has already bought back $250 million so far in the current quarter. Fourth-quarter production Coterra Energy’s oil-and-gas production came in above the high end of the company’s guidance and edged out analysts’ estimates, too. Meanwhile, Pioneer’s oil production slightly missed analysts’ forecasts — a disappointing outcome given the company is oil-weighted and crude returns higher profit margins than natural gas. Even so, Pioneer beat expectations on production of natural gas liquids and gas. Notably, Pioneer doesn’t hedge its oil production, making its realized pricing closer to that of the underlying commodity. Pioneer closed all its hedges at the start of 2022, a prescient move considering crude’s gains last year. 2023 outlook Guidance provided by Coterra and Pioneer echoed that of Devon: Softer production but higher capital expenditures in 2023. Coterra’s total production outlook for oil and gas was below estimates at the mid-point. But it beat on expectations for oil production, which should please investors given the high margins of crude production. On the other hand, Pioneer’s total production outlook was slightly higher than expected, though oil was roughly in line at the mid-point. Capital expenditure outlooks were higher than expected, too, and we suspect both companies are feeling some of the same inflationary pressures Devon cited last week . Still, both are very low cost operators. Coterra sees its corporate free cash flow breakeven at $45 per barrel of WTI and $2.25 per one thousand cubic feet of Henry Hub natural gas, while Pioneer’s 2023 corporate breakeven is $39 per barrel of WTI. (Jim Cramer’s Charitable Trust is long CTRA, PXD, DVN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, U.S. November 24, 2019.
Angus Mordant | Reuters
Club holdings Coterra Energy (CTRA) and Pioneer Natural Resources (PXD) delivered fourth-quarter earnings beats Wednesday. But we’ll be watching for how the market responds to higher capital expenditure outlooks and lower quarterly dividends for both of these Texas-based oil-and-gas firms.
