Investment club holdings Pioneer Natural Resources (PXD) reported better-than-expected earnings after the closing bell on Tuesday. Total revenue of $6.92 billion exceeded expectations of $6.89 billion. Adjusted diluted earnings of $9.36 per share were better than the $8.81 per share forecast by Street. Operating cash flow for the quarter of $3.22 is a bit short versus the $3.45 billion forecast. After accounting for all capital requirements, free cash flow of $2.66 billion came in well above expectations of $2.49 billion. Bottom line This has been a great release from Pioneer that once again demonstrated management’s commitment to shareholder returns. With plans to return more than 95% of free cash flow for the second quarter of the fiscal year via dividends and repurchases, our investment thesis – built on the return of the majority of cash generated to shareholders – remains largely the same. Furthermore, with over 20-year stock offering a break-even price below $40, we see great potential for sustained cash returns even if WTI prices dip a bit from here. With the recent increase in its basic plus variable corporate dividend to $8.57 per share in the third (current) quarter, Pioneer is the highest dividend yielding company in the S&P 500 at 15%. Pioneer is scheduled to host its post-earnings conference call on Wednesday at 10 a.m. ET. We look forward to hearing what management has to say and will update members after the call. Capital Allocation We pay close attention to cash flow metrics because our investment thesis is that production and exploration holdings — Devon Energy (DVN), Coterra (CTRA) and Pioneer — will generate significant cash flows and then turn around and distribute that money to shareholders via dividends and repurchases. Within the earnings presentation, management has estimated the return that investors can expect at WTI oil prices. At $60 oil, we’re looking at a 5% yield; at $80 oil, 8% yield; At $100 oil a 12% yield; At $120 for oil, a yield of 16%; And at $140 oil a 20% return. Conclusion: There are significant dampers and that even in the event of lower WTI prices in the future, Pioneer has the potential to offer attractive cash dividends. Dividend payments are only one way in which management returns capital to shareholders; The other is stock buyback. Since the end of the first quarter, the company has repurchased $750 million of stock, with $500 million of it completed during the second quarter at an average price of $235. Another $250 million in July at an average price of $213 per share. The combination of the third-quarter dividend and second-quarter share repurchase activity is converted annually to a total shareholder return of approximately 19%. Looking ahead, management has $3 billion left under the current share repurchase license. This is approximately 5.5% of the company’s valuation. Guidance for the third quarter, management is targeting oil production at 345 to 360 mega barrels per day (thousand barrels of oil per day), versus an expected 359 barrels of oil per day. Total oil equivalent production is expected to be between 635 and 660 boepd, which is slightly higher than the 644 projected midway. For fiscal year 2022, the administration has provided the following guidance: Oil production in the 350 to 365 mbd range, in line with midstream expectations. Total oil equivalent production is in the range 623 to 648 Mbpd, versus the expected 643.7 Mbpd. Operating cash flow is over $13 billion, just above the $12.7 billion forecast. Free cash flow of over $9 billion, just above the $8.98 billion forecast. Capital budget from $3.6 billion to $3.8 billion, versus $3.6 billion projected, with management noting that the budget will be fully funded by 2022 cash flow. Quarterly Production and Pricing Total oil equivalent production was 643 MB/day, exceeding our forecast of 642 MB/day. The composition of this production was as follows: Oil: 347.96 vs. 348.2 expected barrels per day (thousand standard barrels from 42 US gallons per day) Natural Gas Liquids: 160.18 vs. 157.9 expected barrels per day for gas: 808.18 vs. 799.0 million expected cubic feet/d (Mcfd) Pricing, excluding the effect of derivatives (hedging activity such as selling futures contracts to lock in prices in future periods and thus working with increased certainty), the average realized price for oil was $110.56 versus $107.40 expected, while gas was Natural $44.21 vs. $45.30 expected, gas $6.72 vs. $6.70 predicted. (Jim Cramer’s Charitable Trust is a long PXD. See here for a full list of stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable fund portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above investment club information is subject to our Terms and Conditions and Privacy Policy, along with our disclaimer. No fiduciary obligation or duty will be created, or be created, by virtue of your receipt of any information provided in connection with the Investment Club. There are no specific results or guaranteed profit.
Scott Sheffield, CEO of Pioneer Natural Resources.
Adam Jeffrey | CNBC
Investment club holdings Pioneer Natural Resources (PXD) reported better-than-expected earnings after the closing bell on Tuesday.
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