Matador Resources (NYSE: MTDR) reported its Q3 earnings yesterday and beat analyst expectations on both sales and earnings per share (EPS).
FactSet analyst consensus had EPS pegged at $2.51, and actual results returned EPS of $2.68. Consensus estimated revenues of $737m, and actual returns were $841m.
Matador Resources has had a very exciting year, and the team is looking forward to full-year results at the end of Q4. It has improved its fixed dividend, reduced debt and increased production, reserves and the value of its midstream assets. It has also greatly improved the cash on its balance sheet.
Year-to-date MTDR stock has climbed nearly 75%, although it has endured volatility along the way. Indeed, a stock with a beta higher than 1.0 is expected to be more volatile than the S&P 500. MTDR stock has a 52-week beta of 3.58.
What Does Matador Resources Do?
Matador Resources operates as an independent energy company engaged in the exploration, development, production, and acquisition of oil and natural gas resources.
Its current operations are focused primarily on the oil and liquids-rich portion of the Wolfcamp, and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. Matador also operates in the Eagle Ford shale play in South Texas, and the Haynesville shale and Cotton Valley plays in Northwest Louisiana.
Additionally, Matador conducts midstream operations in support of its exploration, development and production operations and provides natural gas processing, oil transportation services, natural gas, oil and produced water gathering services and produced water disposal services to third parties.
Q3 Earnings Results
Matador has met its primary aims of growing shareholder returns, reducing debt and increasing production, reserves and midstream assets.
During Q3, Matador achieved better-than-expected average oil and natural gas equivalent production of over 105,000 barrels of oil and natural gas equivalent (BOE) per day. This beat company expectations by 4%.
Additionally, Matador’s production has increased by nearly 50% in Q3, Y/Y.
Matador also added a seventh drilling rig.
The fluctuating oil price affects its net income figures.
Net cash provided by operating activities: $557m.
Net income (GAAP): $337.6m, down -19% Q/Q, but up 66% Y/Y.
Matador’s realized oil price: $94.36 per barrel, -15% down Q/Q.
Adjusted net income (non-GAAP): $321.7m, -23% down Q/Q but 116% up Y/Y.
Adjusted free cash flow (non-GAAP): $269.1m.
Adjusted EBITDA (non-GAAP): $539.7m, -19% sequential decrease Q/Q, but an 84% Y/Y increase.
Bond Buy Back
In September, Matador used a portion of its free cash flow to repurchase $105m of its outstanding senior notes in a series of open market transactions, reducing its outstanding bonds from $862m on September 12, 2022 (and $1.05bn originally) to $757m at the end of Q3.
Matador Resources recently announced upgrades to its corporate credit rating by the Fitch rating agency. Fitch upgraded Matador’s Long-Term Issuer Default rating (IDR) from ‘B+’ to ‘BB-.’
The upgrade reflects the company’s production growth momentum, Management’s continued commitment to a conservative financial policy and significant gross debt reduction, which has materially improved credit metrics. Matador’s ratings reflect the company’s high margin, oil-weighted Delaware acreage, supportive midstream assets, strong unit economics and cash netbacks, sub-1.0x leverage and clear maturity schedule.
This Fitch upgrade comes on the back of rating upgrades from Moody’s and S&P Global Rating agencies.
Joseph Wm. Foran, Matador’s Chairman and CEO, commented,
We have now transitioned in the last 30 days from being a ‘single b’ company to a ‘double b’ company across the board. These upgrades reflect our ongoing commitment to repaying debt, improving capital efficiency, our production profile and cash returns to our shareholders. This upgrade also reflects the strength of both our balance sheet and our strong operational execution.
The company raised the midpoints of its 2022 total oil and natural gas production guidance from 21.7 million barrels to 21.85 million barrels for oil and from 95.5 billion cubic feet to 97.0 billion cubic feet for natural gas.
MTDR Stock Financial Metrics
Over the past year, MTDR stock has traded between $33.49 and $70.75. Today it trades at around $68.14. Year-to-date (YTD), the Matador Resources stock price is up 74.8%, while the S&P 500 is down -20.14% over the same period.
FactSet analysts have a consensus Overweight rating on MTDR stock with a target share price of $73.83.
MTDR stock has a price-to-earnings ratio (P/E) of 7.84, and its price-to-book-value (P/BV) is 3.18. MTDR stock comes with a dividend yield of 0.59%.
Matador Resources Growth Potential and Risks
Matador is buying back bonds, thereby reducing its outstanding debt. Matador's CEO suggests the company will continue to buy lower-priced bonds, taking an opportunistic approach when the time is right.
Buying back these bonds can increase cash flow by avoiding interest expenses and saving money on the ultimate redemption of the bonds. It also increases investor confidence in the company and builds trust with shareholders and bond partners.
The company is also open to M&A and has a history of making acquisitions that complement its operations and fit into its drilling program. It seems likely that more M&A activity could be in the pipeline.
Matador has been making operating efficiencies, which include faster drill times to guard against inflationary cost pressures. This has also been helped by Matador, improving its completion procedures and remote fracturing operations.
Is MTDR Stock a Good Investment?
Matador Resources is doing all the right things to appeal to long-term investors. It aims for “profitable growth at a measured pace” and is achieving that YTD. Indeed, Matador is a stronger company than it was two years ago, giving investors reason to feel more confident in its future.
Energy stocks are risky, particularly those operating in US shale. The Biden administration does not support this industry, but with the world facing a global energy crisis and the US strategic reserves being depleted, there's reason to believe demand for US oil and gas will return.