Pioneer Natural Resources (PXD, Financial) is one of the few stocks in the oil sector to stand tall in the midst of declining commodity prices. Although, there was a significant decline in its stocks, but it was reasonable compared to some of its peers that sunk to there all time lows. This reflects its strong fundamentals, and strength of its assets which will prove beneficial in the long run, especially when the oil prices return to their normal level. Albeit slow but the prices would get better eventually as demand rises. But as of now let’s see what should be our take on Pioneer.
A strong performance and outlook
During the quarter its revenue rose a whopping 74.8% from a year ago period to $1.67 billion, while earnings declined to 80 cents a share compared to $1 last year. The numbers are quite encouraging considering the present pricing environment. And going forward, the company will continue to deliver on its growth strategy with help of its strong asset portfolio. Among them its Spraberry/Wolfcamp program particularly stands out, which reported strong growth during the quarter.
Its cost reduction efforts will also help to keep a check on any further decline in oil prices. This is because; most of the companies in the industry are curtailing their expenses, which will reduce production and consequently boost the prices. The management anticipates that the oil prices will be restored back to at least $70 a barrel in 2016 resulting in a 30% to 40% increase in its returns.
In addition, the decision to divest its 50.1% stake of the Eagle Ford Shale Midstream business (EFS Midstream) seems to be in the right direction. The sale would include its midstream business only and will neither affect its upstream assets nor its ability to export processed Eagle Ford condensate. The deal is expected to generate around $1.5 billion to $2 billion in cash sometime by the end of 2015, which will be used to kick start its program with several more rigs going into 2016. With these initiatives, Pioneer seems to be well prepared for the anticipated turnaround of the oil prices. And when it does happen it would be in a sound position to tap this potential.
Conclusion
However, in the near term its numbers does not look very promising. The company has a forward P/E of 97.72 compared to a trailing P/E of 26.83 reflecting seem weakness in its earnings growth. But it should not be a surprise considering cost reduction efforts it has undertaken. Apart from this its long term prospects are encouraging. Therefore in the light of these facts pioneer Natural Resources seems to be a good bet in the long run with some weakness in the near term.
