Independent oil and natural gas company Centennial Resource Development, Inc. (CDEV) focuses on developing crude oil and related liquids-rich natural gas reserves in the United States. Its assets primarily focus on the Delaware Basin, a sub-basin of the Permian Basin. As of December 31, 2021, it leased or acquired approximately 73,675 net acres; and owned 991 net mineral acres in the Delaware Basin.
CDEV shares have gained 57.6% over the past year and 27.3% year-to-date. Over the past six months, the stock has gained 35.4% to close yesterday’s trading session at $7.61. Moreover, Wall Street analysts see a 30.6% upside potential in the stock.
The company has benefited significantly from the rallying oil and gas prices since last year. CDEV’s strong positioning in the market helped to capitalize on the rising prices. West Texas Intermediate crude traded as high as $130.50 last week, while Brent crude reached almost $140. Although the benchmarks closed below $100 on Wednesday on Russia-Ukraine peace talks, oil is still up around 30% for the year. However, hopes for reaching a compromise remain uncertain, and oil prices could remain elevated amid the inflationary environment, which should continue boosting CDEV’s upstream operations. CDEV plans to continue operating its two-rig drilling program and generate over $400 million in free cash flow at current strip prices. It expects to deliver 10% to 15% year-over-year crude oil production growth in 2022.
Here’s what could shape CDEV’s performance in the near term:
Higher-Than-Industry Profit Margins
CDEV’s gross profit margin of 74.81% is 76.2% higher than the industry average of 42.47%, while its net income margin is 83.3% higher than the industry average of 7.32%. Also, the levered FCF margin of 15.49% is 87.2% higher than the industry average of 8.27%. CDEV’s EBIT margin and EBITDA margin of 17.64% and 48.87% compare with the industry averages of 11.38% and 24.79%.
Solid Financial Growth
For the fiscal fourth quarter ended December 31, 2021, CDEV’s oil and gas sales increased 113.7% year-over-year to $316.42 million. Its income from operations increased substantially from its negative year-ago value to $173.27 million. Also, its net income and EPS came in at $160.75 million and $0.51, compared to the prior-year quarter’s net loss and net loss per share of $88.66 million and $0.32. The company’s adjusted EBITDAX rose 136.4% year-over-year to $187.08 million.
Favorable Analysts’ Expectations
Street expects CDEV’s revenue to come in at $282.65 million in the current quarter ending March 2022, indicating an increase of 80% year-over-year. Moreover, the company’s revenue is expected to grow 47.7% in the next quarter and 13.2% in the fiscal year ending December 2022. The consensus EPS estimate of $1.18 for the ongoing year represents year-over-year growth of 156.5%. Analysts expect CDEV’s EPS to increase 350% in the current quarter and 433.3% in the following quarter. Moreover, its EPS is expected to grow 6% per annum over the next five years.
POWR Ratings Show Promise
CDEV has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a grade of B for Quality. Its higher-than-industry profit margins justify this grade.
CDEV also has a B grade for Growth. This is justified as its revenues have increased at a CAGR of 5% over the past three years and 59.8% over the past five years.
Of the 87 stocks in the Energy - Oil & Gas industry, CDEV is ranked #25.
Beyond what I have stated above, one can also view CDEV’s grades for Value, Sentiment, Momentum, and Stability here.
View the top-rated stocks in the Energy - Oil & Gas industry here.
Bottom Line
CDEV has gained significantly on skyrocketing oil prices. And, as oil prices are expected to remain elevated in the near term due to the global supply crunch, CDEV should continue to benefit. Analysts are bullish about the company’s near-term prospects, and considering its stable margins, I think it could be an ideal addition to your portfolio now.
How Does Centennial Resource Development, Inc. (CDEV) Stack Up Against its Peers?
CDEV has an overall POWR Rating of B. However, one could also check out these other stocks within the Energy - Oil & Gas industry with A (Strong Buy) rating: California Resources Corporation (CRC), Baytex Energy Corp. (BTEGF), and VAALCO Energy, Inc. (EGY).
CDEV shares rose $0.09 (+1.14%) in after-hours trading Thursday. Year-to-date, CDEV has gained 32.11%, versus a -7.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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