Coterra Energy (CTRA) recently reported Q1-2022 financial results and exceeded expectations. The company explores for and produces oil, natural gas, and natural gas liquids (NGL). It operates in the Permian Basin, Marcellus Formation, and the Anadarko Basin. The company was formed last year through a merger between Cabot Oil & Gas and Cimarex Energy.
Since then, its revenue streams have more than tripled, and the company enjoys a high amount of free cash flow, which it returns to its investors. I rate the company as bullish in the long term, although the current extreme volatility in the market should be considered.
Uptrending Prices for Crude Oil WTI Contracts
Crude oil contracts had dropped to extreme lows during the COVID-19 pandemic due to a sudden drop in demand for oil. The price had stabilized to its pre-COVID numbers, averaging $60 per barrel in March 2021. The price has been on an uptrend since then.
Because of the Ukraine War, the price spiked in March 2022, trading above $120 per barrel. The price came down a little from there, although recent talks of an EU embargo on Russian oil and gas helped temporarily lift prices again, briefly breaking the $110 per barrel mark.
This week, the market is undergoing extreme volatility due to speculation about future Fed rate hikes. Oil contracts were on a downtrend among the larger sell-off. There was additional speculation about demand for oil lessening with current Chinese COVID-19 lockdowns, as well as a softening of the EU trade embargo on Russian energy. The price is down to about $100 per barrel.
The price of oil contracts does not always have a positive effect on the financial performance of oil companies. At the same time, oil company stock prices tend to follow the same trend lines as oil futures contracts. Accordingly, oil company stocks, like Coterra Energy, have been on a long uptrend.
Today’s downtrend on crude oil contracts does not necessarily portend a downtrend in all energy stocks. Oil contracts tend to experience high seasonality during the summer months.
Coterra Energy’s Q1-2022 Financial Performance
The company reported $2.07 billion in revenue, not including losses on commodity derivatives. The number represents a 321% increase year-over-year, but it must be understood that the prior year’s same quarter was before the merger. Revenue for the company, including losses on commodity derivatives, was $1.68 billion. The market consensus for the company’s Q2-2022 revenue is around $1.9 billion.
Without the effect of commodity derivatives, the average realized price for oil, natural gas, and natural gas liquids was $93.45 per barrel, $4.33 per thousand cubic feet, and $37.87 per Bbl. With the effect of commodity derivatives, the average realized price was $76.15 per Bbl and $4.17 per thousand cubic feet. The company produced an average of 630K barrels of oil equivalent per day. Oil and natural gas production exceeded the company’s earlier guidance.
During Q1 2022, CTRA generated $1.32 billion in cash from operations and showed a net income of $608 million. The company reported $961 million in free cash flow. Also, it had total assets of $20.33 billion versus $8.56 billion in liabilities. Coterra Energy reported $326 million in capital expenditures, including $314 million in drilling and completion capital. Its long-term debt stands at $3.1 billion, and it ended the quarter with $1.4 billion in cash.
Coterra Energy estimates that its 2022 free cash flow should be around $4.5 billion, with capital expenditures expected to land between $1.4 and $1.5 billion. The company assumes consistent oil and gas production for the next quarter. CTRA currently pays a quarterly dividend of $0.60 per share, and it has a $1.25 billion share repurchase plan. The dividend and buybacks are ways that the company returns its free cash flow to its investors.
Coterra Energy’s Stock Price Uptrend and Valuation
CTRA stock has performed well over the past year, returning close to 70%. The price is up 56% year-to-date and has gained 30% in the past three months. The stock price is currently trading over its 50- and 200- day moving averages. Over 93% of its shares are owned by large institutions. Trading momentum has remained high for the stock, and it appears undervalued at a 3.4x forward total-enterprise-value-to-revenue multiple.
Wall Street’s Take
Turning to Wall Street consensus, Coterra Energy is rated as a Moderate Buy based on seven Buys, five Holds, and no Sell ratings assigned over the last three months. The average Coterra Energy price target of $38.33 per share represents 29.5% upside potential.
Conclusion
Coterra Energy has tripled its revenue year-over-year since its merger. The company reported high revenues and free cash flow for the quarter. Also, Coterra expects consistent production and revenue going into the next quarter.
The company’s stock price has been on a consistent uptrend as the price of crude oil has skyrocketed. I believe that oil contracts should remain high for the rest of the summer months, and the company’s stock price is likely to continue uptrending. I rate the company as bullish in the long term.
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