CXO - Embedded Expectations Analysis - 2020 01 14
Concho Resources Inc. (CXO:USA) currently trades below historical averages relative to UAFRS-based (Uniform) Assets, with a 0.9x Uniform P/B. At these levels, the market has bearish expectations for the firm, but management may have concerns about cost initiatives, well development, and their free cash flowSpecifically, management may lack confidence in their ability to execute their cost improvement initiatives, reduce their uncompleted well count, and fund the discovery and development of new Permian wells. Moreover, they may be exaggerating their ability to generate free cash flow in various oil price environments and sustain dividend increases, and they may lack confidence in their ability to successfully transition from delineation to development while optimizing their drilling operations. In addition, management may be concerned about potential federal regulations, and they may lack confidence in their ability to meet production expectations
Concho Resources is an independent oil and natural gas company engaged in the acquisition, development, exploration and production of oil and natural gas properties. The company's operations are primarily focused in the Permian Basin of West Texas and Southeast New Mexico.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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