What happened

Shares of U.S. exploration and production company Comstock Resources (CRK +0.00%) 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. 

So what

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.  

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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.  

Now what

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.