Please ensure Javascript is enabled for purposes of website accessibility

Why Centennial Resource Development Stock Jumped 8% in Early Trading Today

By Reuben Gregg Brewer - Aug 4, 2020 at 10:41AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The energy company reported earnings, which weren't that good. But investors were upbeat anyway. Here's why.

What happened

Shares of exploration and production company Centennial Resource Development (CDEV 5.88%) rose roughly 8% at the open on Aug. 4. There wasn't any specific news today, but the company released earnings after the close on Aug. 3. Investors took solace in the fact that things weren't worse.

So what

Centennial posted second-quarter 2020 earnings of $0.02 per share, down from $0.07 in the same period of 2019. However, that was a vast improvement over the writedown-driven loss of $1.99 per share in the first quarter of 2020. There were a couple of key takeaways from the second stanza of the year. Notably, Centennial worked quickly to reduce costs and production in the face of low oil prices. That helped it manage through the difficult period and, based on the choice early in the span to store some of the oil it was producing instead of selling into a weak market, allowed it to be prepared for a time when markets improved. That improvement started to take shape as the quarter progressed.  

A worker in front of oil wells

Image source: Getty Images.

In fact, based on the current price range of oil, Centennial believes it will be breakeven on a cash flow basis for the full year. That's no small feat for the driller in the current oil market. Moreover, it suggests that the heavily leveraged company will be able to muddle through the downturn without having to take more drastic actions than it already has (it completed a debt exchange in May) to shore up its balance sheet. 

Now what

So while the year-over-year decline in earnings was less than desirable, the overall earnings story here wasn't so bad, all things considered. That said, there's still a huge supply/demand imbalance in the energy space that's likely to keep oil prices low for some time. In other words, the problems Centennial is facing are likely to linger. Long-term investors looking at the energy patch are probably better off sticking to larger energy names with stronger finances, such as an oil major like Chevron. Owning Centennial's stock is likely to be a bumpy ride for the foreseeable future. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Centennial Resource Development, Inc. Stock Quote
Centennial Resource Development, Inc.
CDEV
$7.56 (5.88%) $0.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.