It has been about a month since the last earnings report for Diamondback Energy (FANG). Shares have lost about 1.2% in that time frame, underperforming the S&P 500.

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

Diamondback Q2 Earnings Beat Estimates on Strong Production

Diamondback Energy reported second-quarter 2024 adjusted earnings per share of $4.52, which beat the Zacks Consensus Estimate of $4.46 and increased from the year-ago adjusted figure of $3.68. The outperformance primarily reflects stronger production and a gain in overall realization.

Meanwhile, revenues of $2.5 billion rose 23.4% from the year-ago quarter’s sales and outperformed the Zacks Consensus Estimate by 14%.

In good news for investors, the company is using the excess cash to reward them with dividends and buybacks. As part of that, FANG’s board of directors declared a quarterly cash dividend of 90 cents per share to its common shareholders of record on Aug 15. The payout will be made on Aug 22. In addition to the regular dividend, FANG declared a special dividend of $1.44 per share.

As of Aug 2, the company executed $2.4 billion of share repurchases, with approximately $1.6 billion remaining on its current share buyback authorization.

Production & Realized Prices

FANG’s production of oil and natural gas averaged 474,670 barrels of oil equivalent per day (BOE/d), comprising 58% oil. The figure was up 5.5% from the year-ago quarter and beat our estimate of 462,689.5 BOE/d. While crude and natural gas output increased 4.9% and 1% year over year, respectively, natural gas liquids volumes rose 11.6%.

The average realized oil price during the most recent quarter was $79.51 per barrel, 11.5% higher than the year-ago realization of $71.33 and ahead of our projection of $75.74. Meanwhile, the average realized natural gas price plunged to 10 cents per thousand cubic feet (Mcf) from 94 cents in the year-ago period and came below our estimate of 81 cents. Overall, the upstream oil and gas company fetched $50.33 per barrel compared with $46.31 a year ago.

Costs & Financial Position

Diamondback’s second-quarter cash operating cost was $11.67 per barrel of oil equivalent (BOE) compared with $10.66 in the prior-year quarter and our projection of $12.55. The rise in costs compared to the year-ago period reflected a steep increase in lease operating expenses to $5.88 per BOE from $4.88 in the second quarter of 2023. Further, FANG’s gathering, processing and transportation expenses increased 14.5% year over year to $1.90 per BOE, while cash G&A expenses rose in the second quarter of 2024 to 63 cents per BOE from 51 cents during the corresponding period of 2023. On a somewhat bullish note, production and ad valorem taxes fell 9.7% year over year to $3.26 per BOE.

Diamondback spent $637 million in capital expenditure — $585 million on drilling and completion, $51 million on infrastructure, environment and $1 million on midstream. The company booked $816 million in free cash flow in the second quarter. 

As of Jun 30, the Permian-focused operator had approximately $6.9 billion in cash and cash equivalents and $12 billion in long-term debt, representing a debt-to-capitalization of 39.3%.



Guidance

FANG looks to pump around 462,000-470,000 BOE/d of hydrocarbon in 2024, compared to 458,000-466,000 BOE/d predicted before. Of this, oil volumes are likely to be between 273,000 and 276,000 barrels per day (270,000-275,000 previously). The company also narrowed its forecast of a capital spending budget to between $2.35 billion and $2.45 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Diamondback has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

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

Performance of an Industry Player

Diamondback is part of the Zacks Oil and Gas - Exploration and Production - United States industry. Over the past month, Southwestern Energy (SWN), a stock from the same industry, has gained 2.8%. The company reported its results for the quarter ended June 2024 more than a month ago.

Southwestern Energy reported revenues of $1.08 billion in the last reported quarter, representing a year-over-year change of -14.7%. EPS of $0.10 for the same period compares with $0.09 a year ago.

For the current quarter, Southwestern Energy is expected to post earnings of $0.16 per share, indicating a change of +60% from the year-ago quarter. The Zacks Consensus Estimate has changed +9.3% over the last 30 days.

Southwestern Energy has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.

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