A month has gone by since the last earnings report for Magnolia Oil & Gas Corp (MGY). Shares have added about 1.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Magnolia Oil & Gas Corp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Magnolia Q2 Earnings Beat Estimates
Magnolia Oil & Gas reported second-quarter 2024 adjusted net profit of 56 cents per share, beating the Zacks Consensus Estimate of 51 cents. The outperformance can be attributed to a healthy increase in production volumes and higher oil prices year over year.
However, the oil and gas exploration and production company’s total revenues came in at $336.7 million, which missed the Zacks Consensus Estimate of $341 million. It was due to lower-than-expected revenues from natural gas. Moreover, the metric totaled $18.6 million, which missed the consensus mark of $24.3 million. However, the top line increased 4.4% from $280.3 million recorded in the year-ago period.
In the quarter under review, the company recorded $269.4 million in net cash from operating activities and achieved a free cash flow of $96.7 million. Magnolia’s operating income was 40% of revenues.
Magnolia repurchased 4 million shares of its common stock (Classes A and B) for $102.7 million in the quarter under review. The company has a remaining $5.9 million share repurchase authorization allocated for open market purchases.
MYG distributed approximately $130 million to its shareholders in the second quarter through a combination of dividend payments and share repurchases. As of quarter-end, the company maintained a robust cash position of $275.7 million and had an undrawn revolving credit facility of $450 million.
Production & Prices
The average daily total output of 90,207 barrels of oil equivalent per day (boe/d) increased from the year-ago quarter’s figure of 81,881 boe/d. Additionally, the figure surpassed our estimate of 89,000 boe/d. Oil and gas production increased 10% year over year. Oil volumes totaled 37,943 barrels per day (bpd), up 11.4% from the year-ago quarter’s level. The figure exceeded our estimate of 37,200 bpd. Natural gas volumes reached 164,641 thousand cubic feet per day (Mcf/d), up 8.7% from the second quarter of 2023.The figure also exceeded our expectations of 162,800 Mcf/d.
The average realized crude oil price was $79.74 per barrel, indicating a 10.8% increase from the year-ago period’s level of $71.98. The average realized natural gas liquids price was $18.96 per barrel, implying a 7.3% increase from the year-ago period’s figure. However, natural gas prices decreased 17.9% year over year to $1.24 per thousand cubic feet. MGY recorded an average sales price per boe of $41.02 compared with $37.62 a year ago.
Balance Sheet & Capital Expenditure
As of Jun 30, Magnolia had cash and cash equivalents of $275.7 million and long-term debt of $394.1 million. The total debt-to-total capital was 17%.
The company spent $123.4 million on its capital program in the reported quarter. Operating expenses increased to $202.4 million from $159 million in the year-ago period.
Guidance
Magnolia plans to maintain its current operating tempo of two drilling rigs and one completion crew throughout 2024. Despite consistent activity levels compared to last year, significant cost reductions and operational enhancements will allow us to drill, complete and bring online more wells. This will drive substantial high-margin growth.
MGY's primary focus for 2024 is developing multi-well pads in the Giddings area. The company plans to execute a smaller-scale development program in the Karnes area and conduct appraisal well activities across its asset base. In Giddings, Magnolia anticipates drilling multi-well pads with lateral lengths averaging 8,500 feet, an increase from last year. The company expects full-year 2024 capital spending and production to increase. Drilling and completion (D&C) capital is projected to range from $450 to $480 million.
Third-quarter D&C capital expenditures are estimated at $120 million and total production for the quarter is expected to reach 91 thousand barrels of oil equivalent per day. Magnolia's operational expertise is being leveraged to enhance field performance and efficiency on recently acquired assets. This is expected to maintain low unit operating costs throughout the second half of 2024. Building on its strong track record in the Giddings area, the company expects that cost optimization initiatives will boost margins and free cash flow on these assets.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Magnolia Oil & Gas Corp has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Magnolia Oil & Gas Corp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Magnolia Oil & Gas Corp belongs to the Zacks Oil and Gas - Exploration and Production - United States industry. Another stock from the same industry, Comstock Resources (CRK), has gained 18.5% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Comstock reported revenues of $246.83 million in the last reported quarter, representing a year-over-year change of -14.4%. EPS of -$0.20 for the same period compares with $0 a year ago.
For the current quarter, Comstock is expected to post a loss of $0.10 per share, indicating a change of -350% from the year-ago quarter. The Zacks Consensus Estimate has changed -300% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Comstock. Also, the stock has a VGM Score of D.
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