Concho Resources, Inc. – Value Analysis (NYSE:CXO) : January 5, 2017

Capitalcube gives Concho Resources, Inc. a score of 66.

Our analysis is based on comparing Concho Resources, Inc. with the following peers – Linn Energy, LLC, Pioneer Natural Resources Company, Legacy Reserves LP, Laredo Petroleum, Inc., Energen Corporation, Apache Corporation, ConocoPhillips, Clayton Williams Energy, Inc. and Memorial Production Partners LP (LINEQ-US, PXD-US, LGCY-US, LPI-US, EGN-US, APA-US, COP-US, CWEI-US and MEMP-US).

Investment Outlook

Concho Resources, Inc. has a fundamental score of 66 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance last month is down from a median performance last year.
  • Concho Resources Inc.’s current Price/Book of 2.75 is about median in its peer group.
  • CXO-US‘s operating performance is relatively good compared to its peers. The market currently does not expect high earnings growth relative to its peers but seems to expect the company to maintain its relatively high rates of return.
  • CXO-US employs relatively high amounts of assets while generating relatively median profit margins.
  • Compared with its chosen peers, changes in the company’s annual earnings are better than the changes in its revenue, implying better than median cost control and/or some economies of scale.
  • CXO-US‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s relatively low gross margin and median pre-tax margin suggest operations may be constrained on pricing versus peers.
  • While CXO-US‘s revenues in recent years have grown faster than the peer median, the market gives the stock a P/E ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • CXO-US‘s operating performance may not allow it to raise additional debt.

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Leverage & Liquidity

CXO-US would seem to have a hard time raising additional debt.

  • With debt at a relatively low 13.06% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 33.72%), and relatively tight interest coverage level of -2.19x, CXO-US would have a hard time raising much additional debt. Thus, the company is classified as having Limited Flexibility when it comes to raising more debt.
  • All 9 peers for the company have an outstanding debt balance.

CXO-US has moved to a Constrained from a relatively low liquidity profile at the recent year-end.

  • CXO-US‘s interest coverage is its lowest relative to the last five years and compares to a high of 7.54x in 2011.
  • Though its interest coverage decreased to -2.19x from -1.17x (in 2015), its peer median remained relatively stable during this period at -1.34x.
  • Interest coverage fell 1.02 points relative to peers (and is now lower than its peer median).
  • CXO-US‘s debt-EV is its lowest relative to the last five years and compares to a high of 27.15% in 2012.
  • The decrease in its debt-EV to 13.06% from 23.07% (in 2015) was also accompanied by a decrease in its peer median during this period to 33.72% from 41.49%.
  • Relative to peers, debt-EV fell 2.24 percentage points. Unlike the peer median, it is also below the 25% leverage benchmark.

Access the detailed analysis for Concho Resources, Inc.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Linn Energy, LLC 138.23 0.35 0.97 22.22
Pioneer Natural Resources Company 10.06 2.51 -2.9 44.74
Legacy Reserves LP 79.71 1.14 -1.31 -0.34
Laredo Petroleum, Inc. 30.9 1.19 -0.1 24.12
Energen Corporation 9.67 1.95 -6.43 68.42
Apache Corporation 26.27 2.01 -0.9 27.31
ConocoPhillips 36.54 1.28 -3.95 17.26
Clayton Williams Energy, Inc. 39.97 3.04 -1.37 1.23
Memorial Production Partners LP 101.21 2.28 -1.05 13.14
Concho Resources Inc. 13.06 3 -2.19 22.47
Peer Median 33.72 1.98 -1.34 22.35
Best In Class 9.67 3.04 0.97 68.42

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Company Profile

Concho Resources, Inc. engages in the acquisition, development and exploration of oil and natural gas properties. Its operations focuses on the Permian Basin region of Southeast New Mexico and West Texas. The company was founded on February 22, 2006 and is headquartered in Midland, TX.

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