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Why Centennial Resource Development Stock Is Rallying Today

By Matthew DiLallo - Updated Feb 24, 2021 at 12:50PM

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The oil producer had some good news.

What happened

Shares of Centennial Resource Development (CDEV -7.78%) had surged nearly 10% by 12:15 p.m. EST on Wednesday. Fueling the oil stock was its 2021 outlook, which more than offset its lackluster fourth-quarter results.  

So what

Centennial Resource closed the books on a rough year. It reported a loss of $88.7 million, or $0.32 per share, which missed the consensus estimate by $0.23 per share. That pushed its full-year loss to $682.8 million, or $2.46 per share, driven primarily by a non-cash impairment charge it took during the first quarter due to historically low oil prices. 

Oil storage tanks near a pumpjack and the sun in the background.

Image source: Getty Images.

However, the oil company ended the year on a positive note. It produced free cash flow and reduced debt for the second straight quarter. It also reported 2020 production volumes, capital expenses, and costs within its full-year guidance ranges. 

Meanwhile, Centennial Resource sees better days ahead in 2021. It expects to be free-cash-flow positive this year at the current oil pricing level. Because of that, it anticipates that it will achieve significant debt reduction by year-end while keeping its full-year production flat with last year's exit rate. 

Now what

The recent improvement in oil prices is a gift for Centennial Resource Development. It puts the oil company on track to produce excess cash so that it can shore up its financial situation. If oil prices stay strong, its stock could continue rallying. However, its stock could take a tumble if the price of crude gives up some of its recent gains, given its financial issues. Because of that, investors need to tread carefully around this oil stock.

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Stocks Mentioned

Centennial Resource Development, Inc. Stock Quote
Centennial Resource Development, Inc.
CDEV
$6.28 (-7.78%) $0.53

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