Viper Energy (VNOM) Down 63.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Viper Energy Partners (VNOM). Shares have lost about 63.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Viper Energy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Viper Energy Q4 Earnings Lag Estimates, Improve Y/Y

Viper Energy Partners reported fourth-quarter 2019 earnings per unit of 3 cents, missing the Zacks Consensus Estimate of 9 cents but improving from the year-ago loss of 1 cent.

The partnership generated operating income of $92.7 million, which beat the Zacks Consensus Estimate of $89 million. Also, the top line increased from the year-ago level of $73.7 million.

The weaker-than-expected earnings can be attributed to fall in overall average realized price and higher costs and expenses, partially offset by increased production volumes.

In fourth-quarter 2019, the partnership closed nine acquisitions for $912.9 million. These acquisitions boosted its mineral interests to 24,304 net royalty acres. The partnership had proved reserves of 88.9 million barrels of oil equivalent as of Dec 31, 2019, of which crude oil constituted 54.4 million barrels. Proved reserves increased 41% year over year.

Cash Distribution

The partnership was authorized by the board of directors of its general partner to make cash distribution of 45 cents per common unit for the December quarter of 2019. The new distribution reflects a sequential decrease of 2.2%.

It generated $236.7 million of net cash from operating activities in 2019, lower than the year-ago period’s $244.5 million.

Production Rises

The resources wherein the partnership has mineral interests produced 2,405 thousand oil equivalent barrels (MBoe) in the December quarter of 2019, up from 1,858 MBoe a year ago. Of the total volumes, oil accounted for 63%. Production of crude oil, natural gas and natural gas liquids rose from the year-ago levels in the quarter under review.

Overall Realized Prices Decline

Overall average realized price per barrel of oil equivalent was recorded at $38.20, lower than $39.17 in fourth-quarter 2018. Average realized oil prices during the quarter were recorded at $53.90 per barrel, up from $48.73 a year ago. Natural gas prices were recorded at $$1.29 per thousand cubic feet, lower than the year-ago quarter’s $2.41. The price of natural gas liquids was $14.53 a barrel, down from the year-ago quarter’s $22.13.

Cost & Expenses Rise

Total expenses in the quarter under review amounted to $35.3 million, significantly higher than $24.2 million in the prior-year period. On a per BOE basis, total operating expenses were recorded at $3.34, higher than $3.26 in the year-ago period.

Balance Sheet

As of Dec 31, 2019, the partnership’s cash and cash equivalents were recorded at $3.6 million. It reported long-term debt of $586.8 million, representing a debt-to-capitalization ratio of 20.7%.

Guidance

The partnership provided its first-half 2020 guidance of net production in the band of 26-28.5 MBoe/d. It expects first-half 2020 net oil production in the range of 16.5-18 MBbls/d. For full-year 2020, Viper Energy expects net production in the range of 27-30 MBoe/d.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -88.31% due to these changes.

VGM Scores

Currently, Viper Energy has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Viper Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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