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Why Centennial Resource Development Stock Spiked 14% in Morning Trading

By Reuben Gregg Brewer - May 5, 2021 at 2:23PM

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Shares of the U.S. exploration and production company took off after it reported a first-quarter loss. There's more to the story.

What happened

Shares of U.S. onshore energy company Centennial Resource Development (CDEV 1.08%) rose as much as 14% in early trading on May 5. Although oil prices were a touch higher in the morning, the real reason for the move was the company's first-quarter earnings update, released after market close on May 4.  

So what

Typically, the headline number for a company when it reports is the bottom line -- earnings. On that front, Centennial lost $0.12 per share in the first quarter of 2021. That was a significant improvement over the red ink it spilled in the year-earlier period, but Wall Street analysts had been calling for the company to hit the breakeven point. That type of miss would usually result in a stock falling, but not today.  

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Centennial Resource Development struggled early on in the pandemic as a dramatic decline in demand upended the supply-demand dynamics in the energy sector. Things are still not quite back to normal but are greatly improved, which has allowed Centennial to generate positive free cash flow in each of the past three quarters. This is a trend that investors are very pleased to see continuing. For one thing, it will allow the driller to deal with the heavy debt load it is carrying. On that front, Centennial was able to issue debt at 3.25% during the quarter so it could pay down debt costing it 8%, offering material cost savings. And management stated that it would continue to pay down debt as the year progresses.  

Now what

At one point early in the pandemic, there were very real concerns about Centennial Resource Development's long-term future. However, it managed to muddle through the worst of the energy industry downturn and, today, is showing that its business and financial position are improving. Investors are probably right to be excited with the update, even though the bottom line was weaker than expected.

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.

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Centennial Resource Development, Inc. Stock Quote
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