PXD stock to gain as demand for crude oil grows

We believe there is considerable benefit in Pioneer Natural Resources action (NYSE:PXD) at the current price of $95 because it’s down 40% this year. It traded at a pre-Covid high of $140 in February before dropping to a low of $56 in March. Supported by the rally in benchmark prices, third quarter revenue was down only 22% (year-over-year) compared to the staggering 55% drop in the second quarter. Given rising production volumes and declining commercial crude oil inventories, we believe the stock has significant upside potential in the near future. Our conclusion is based on our detailed analysis of The performance of Pioneer Natural Resources shares during the current crisis with that of the 2008 recession in an interactive dashboard analysis.

Timeline of the 2020 crisis so far:

  • 12/12/2019: First cases of coronavirus reported in China
  • 01/31/2020: WHO declares a global health emergency.
  • 02/19/2020: Signs of an effective containment in China and hopes for monetary easing by major central banks help the S&P 500 hit a record high
  • 03/23/2020: S&P 500 34% drop since peaking on February 19, as Covid-19 cases accelerate outside China. Doesn’t help oil prices crash in mid-March amid Saudi-led price war
  • From 03/24/2020: S&P 500 recover 60% since lows seen on March 23, as the Fed’s multi-billion dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.

In contrast, here’s how PXD and the wider market fared during the 2007/2008 crisis.

Timeline of the 2007-08 crisis

  • 01/10/2007: Approximate pre-crisis peak in the S&P 500 index
  • 09/01/2008 – 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
  • 03/01/2009: approximate trough of the S&P 500 index
  • 01/01/2010: Initial recovery to levels before accelerated decline (around 09/01/2008)

Pioneer of natural resources

vs. S&P 500 performance on the 2007-08 financial crisis

PXD stock fell from levels around $45 in September 2007 (pre-crisis peak) to levels around $15 in March 2009 (when markets bottomed), implying that the PXD stock lost 66%. It recovered after the 2008 crash to levels around $48 in early 2010 – rising 230% between March 2009 and January 2010. In comparison, the S&P 500 index initially fell 51% in the wake of the recession before recovering 48% in January 2010. .

Pioneer Natural Resources fundamentals expected to improve over coming quarters

PXD’s revenue grew 175% from $3.4 billion in 2016 to $9.3 billion in 2019, primarily due to a series of acquisitions and increased production volumes. However, the company’s margins deteriorated due to increased depreciation and depletion costs, which led to a sharp decline in earnings per share in 2019. The recovery in benchmark prices and growth in production volumes led to a sequential improvement in third quarter revenue and profit. Given the downward trend in commercial crude oil inventories, we expect Pioneer Energy’s fundamentals to improve over the next few quarters.


Phases of the Covid-19 crisis:

  • Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in realitythe number of cases accelerating globally
  • From the end of March 2020: Social distancing measures + confinements
  • April 2020: Fed stimulus removes short-term survival anxiety
  • May-June 2020: Resumption of requestwith a gradual lifting of confinements – no more panic despite a constant increase in the number of cases
  • July-November 2020: Weak Q2 and Q3 results, but persistent demand improvement and Advances in Vaccine Development Boost Market Sentiment

Based on historical performance and given the decline in crude oil inventories, we believe the stock can fully recover to pre-Covid levels, supported by a strong cash position and improving turnover.

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Felix J. Dixon