BRAZIL – 2020/06/29: In this photo illustration the Pioneer Natural Resources Company logo seen … [+]
We believe that there is a sizable upside in Pioneer Natural Resources stock (NYSE: PXD) at the current price of $95 as it is down by 40% this year. It traded at a pre-Covid high of $140 in February before dropping to the lows of $56 in March. Supported by the recovery in benchmark prices, the third quarter revenues declined by just 22% (y-o-y) as compared to the staggering 55% decline in the second quarter. In view of rising production volumes and declining commercial crude oil inventories, we believe that the stock has sizable growth potential in the near future. Our conclusion is based on our detailed analysis of Pioneer Natural Resources stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- From 3/24/2020: S&P 500 recovers 60% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here’s how PXD and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
Pioneer Natural Resources
PXD stock declined from levels of around $45 in September 2007 (pre-crisis peak) to levels of around $15 in March 2009 (as the markets bottomed out), implying PXD stock lost 66%. It recovered post the 2008 crisis to levels of about $48 in early 2010 – rising by 230% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.
Pioneer Natural Resources’ Fundamentals are likely to improve in the coming quarters
PXD’s Revenues grew by 175% from $3.4 billion in 2016 to $9.3 billion in 2019, mainly due to a series of acquisitions and rising production volumes. However, the company’s margins deteriorated due to growing depreciation and depletion costs – resulting in a sharp decline in earnings per share in 2019. Recovery in benchmark prices and growing production volumes led to a sequential improvement in third quarter revenues and earnings. Considering the declining trend in commercial crude oil inventories, we expect Pioneer Energy’s fundamentals to improve in the coming quarters.
CONCLUSION
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- July-November 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment
Going by the historical performance and in view of declining crude oil inventories, we believe that the stock can completely recover to pre-Covid levels supported by a strong cash position and improving topline.
Trefis
What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams
