Shares of U.S. exploration and production company Comstock Resources (CRK) rose as much as 10% on Feb. 17. Although oil and natural gas prices were higher today, at least a portion of Wall Street's enthusiasm was related to the company's earnings, released after the market closed on Feb. 16.
Energy markets were not in a good place in 2020, hit hard by the pandemic-driven economic shutdowns that sharply reduced demand. However, things did start to improve as the year progressed. Comstock's fourth-quarter results were proof of that, with realized prices for natural gas of around $2.40 per MCF, up $0.10 from the same quarter in 2019 and a huge 19% sequentially from the third quarter of 2020. The benefit of higher energy prices translated into solid earnings.
Indeed, the most notable result from the fourth quarter was the bottom-line adjusted profit of $0.14 per share, which excludes one-time items such as unrealized hedging gains. The company lost $0.06 per share in the third quarter of 2020, so it was a notable sequential improvement. And Wall Street had been expecting $0.10 per share. Investors tend to like earnings beats, and this one was significant. So it isn't surprising that the stock rallied strongly on the news.
One day doesn't make a trend, nor does one quarter. However, after a difficult year, it's hard to fault investors for being excited about a solid expectations beat and improved sequential results. And, notably, Comstock's cash flow in 2020 more than covered its capital spending. Comstock is projecting capital spending to increase around 10% at the midpoint in 2021, which hints at the potential for a solid year ahead -- particularly if the company can live within its means again, with cash flow covering its drilling costs.