CXO - Embedded Expectations Analysis - 2020 06 30
Concho Resources Inc. (CXO:USA) currently trades at a discount to UAFRS-based (Uniform) assets, with a 0.8x Uniform P/B. At these levels, the market has expectations for profitability to remain muted, and management appears concerned about the oil market, their capex spending, and their profitability guidanceSpecifically, management may lack confidence in their ability to meet their rate of return guidance by lowering DC&E costs per foot, time the proper ramp-up in production after the volume shut-in, and high-grade their capital spending plans. In addition, they may be concerned about lowering capex spend to only maintenance level for the rest of the year, the ability of oil prices to recover, and the current health of U.S. oil supply and shale production. Furthermore, they may be overstating the efficiency of the energy market, their ability to react appropriately to the evolving environment, and their ability to reduce oil decline rates
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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