Pioneer Natural Resources (PXD -2.28%) recently reported third-quarter earnings. They were pretty good, but that was to be expected because oil prices had been heading higher in the quarter. However, there's something else driving the stock price right now. Here are three things investors need to know before buying Pioneer today.
1. Exxon is planning to buy Pioneer
The first and most important thing to know about this energy producer is that integrated energy giant ExxonMobil (XOM -2.78%) is buying it. The deal is an all-stock transaction, which is important. When the acquisition was announced, the transaction was valued at $64.5 billion, including the assumption of debt. The key factor for investors right now, though, is that Pioneer shareholders will receive 2.3234 shares of Exxon stock for every share of Pioneer that they own.
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This is big. At the time of the announcement, that placed a value of roughly $253 per share on Pioneer's stock. But that price only existed based on Exxon's stock price at the time. The actual value of the deal for Pioneer investors will bob and weave along with the ups and downs of Exxon's share price. Whatever the value of 2.3234 shares of Exxon equates to on any given day is what the value of Pioneer's stock is worth, assuming this big energy industry deal goes through. It doesn't even really matter how Pioneer is performing as a company. The price of Exxon's stock will determine the price of Pioneer's stock.
2. What if the deal doesn't take place?
The truth is that Pioneer's stock will likely trade below the takeout price. That's completely normal for an acquisition since there's always a chance that the deal falls apart. Although Exxon is financially strong enough to seal this deal, that's not the biggest headwind. In fact, the two companies have received a second request for comment from the Federal Trade Commission. This is the government body that oversees mergers to make sure they aren't anti-competitive in nature, giving too much power to a single company and, thus, hurting consumers.
Receiving a second request isn't a death knell for the deal, but neither is it a particularly positive sign. It suggests that the government is taking a particularly close look at a transaction, which is exactly what it would do if it were planning to say no to the deal. In other words, Exxon buying Pioneer is not a slam dunk. If the deal were to fall through, Pioneer's stock would likely fall back toward the levels at which it traded prior to the news of the proposed deal.
3. Pioneer is, seemingly, performing well
This is where things get a little tricky. Because of the pending transaction with Exxon, Pioneer has drastically reduced the amount of information it is providing investors about its financial performance. For example, it didn't hold a third-quarter 2023 earnings conference call. This isn't unusual in such situations, but it does leave investors with less information than they may like, given the Federal Trade Commission's apparent scrutiny of the transaction.
That said, Pioneer's third-quarter production was toward the high end of its guidance range. That suggests operating performance remains strong. Earnings were down from the third quarter of 2022 but up sequentially from the second quarter of 2023. This makes sense because oil and natural gas prices are the primary drivers of the company's top- and bottom-line performance. Oil prices are down from last year but up sequentially from the second quarter. The performance-linked dividend was raised from $1.84 per share to $3.20.
The good news is that should the merger fail to be completed, Pioneer seems to be doing as expected. The bad news is that the stock will likely still fall since Exxon agreed to pay a premium for the shares. However, at least there's a solid floor underneath the stock driven by the company's performance.
Pioneer's story is not simple today
The big takeaway that investors need to understand about Pioneer before buying it right now is that the investment thesis is complicated. Exxon's proposed acquisition is playing an outsized role in the stock price. That will be true even if the deal doesn't get closed as expected. But, despite reduced information being provided about financial performance, it seems like Pioneer is performing fairly well. That should provide some downside protection in the event that the deal is scuttled. So, before buying this stock, make sure you understand there are a lot of moving parts and some downside risk.
