Coterra Energy missed Wall Street expectations for sales and earnings in the second quarter. However, production volumes and more importantly cash generation both came in ahead of expectations. Revenue in the three months ended June 30 increased 7% year over year to $1.27 billion but came up short versus the $1.33 billion consensus forecast, according to analyst estimates compiled by LSEG. Adjusted diluted earnings per share fell 5.1% versus the year-ago period to 37 cents and missed expectations of 37 cents, LSEG data showed. CTRA YTD mountain Coterra Energy YTD The results were released after Thursday’s close. The post-earnings conference call was held Friday morning. In another terrible overall market, the stock on Friday dropped roughly 3.5% to just under $25 per share. Bottom line In addition to the strong production and strict capital expenditures discipline, management raised their production outlook and discretionary cash flow target for the remainder of the year. Given the strong execution and management’s ability to be flexible in allocating resources between oil and natural gas depending on commodity economics, we’re reiterating our buy-equivalent 1 rating on Coterra. But we’re cutting our price target by $2 per share to $28, in acknowledgment that commodity prices have come down as the economy is slowing. Coterra Energy Why we own it: Formed by 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 practices capital discipline and is a low-cost operator. It’s committed to returning 50% or greater of annual free cash flow to shareholders. Our lone energy stock, Coterra also acts as a hedge on inflation and geopolitical risk. Competitors: EQT Corp ., Devon Energy , Marathon Oil Last buy: May 29, 2024 Initiation: April 14, 2022 Coterra returned a total of $295 million to shareholders in the second quarter – split between $155 million in declared dividends and $140 million coming from share repurchases. That amounts to 120% of free cash flow generated in the quarter, demonstrating management’s seriousness and conviction in keeping the focus more on cash returns to shareholders than production growth at any cost. Under management’s stated commitment to returning 50% or more of annual free cash flow via dividends and buybacks, Coterra has returned this year 103% of free cash flow to shareholders. At the end of June, the Houston-based company had $1.3 billion remaining under its previous $2 billion authorization. The importance of capital returns to Coterra investors, like us, is evident as the annual dividend yield of 3.25% does pay us for patience with a stock that’s severely underperformed the overall market. While leaning into oil production, crude prices rising less than 4% this year have been little help as natural gas has declined more than 20% year to date. On the post-earnings call, CEO Tom Jorden talked about the benefit…
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