Since the start of 2022, the energy sector has been outperforming the overall market, driven by surging oil and gas prices. The main reason for this rally is a highly uncertain supply outlook amid the Russian invasion of Ukraine.
Year-to-date (YTD), the energy industry demonstrated a strong bullish momentum and surpassed the broader market, as evidenced by the 41.17% increase in the Energy Select Sector SPDR ETF (XLE) compared to SPDR S&P 500 Trust ETF’s (SPY) 15.91% loss over the same period. Therefore, investors could consider adding shares of those companies to hedge their portfolios against the current bear market.
With this in mind, today, I am going to analyze and compare two popular energy stocks, Camber Energy, Inc. (CEI) and Centennial Resource Development, Inc. (CDEV) to determine which is a better investment at current levels.
Camber Energy is an energy company that engages in the acquisition, development, and sale of crude oil, natural gas, and natural gas liquids (NGL) in the Cline shale and upper Wolfberry shale in Glasscock County, Texas. Centennial Resource is a Denver-based oil and gas company that concentrates on the development of crude oil and related liquids-rich natural gas reserves in the United States.
YTD, shares of CEI have dropped 19.5%, while CDEV stock gained about 24.4% over the same period.
Recent Developments
On March 11th, Camber Energy declared that it had redeemed 2,636 shares of its Series G Preferred Stock dated December 31st, 2021. This development was supported by a $100 million financing commitment from an institutional investor. Besides, Camber Energy reduced the number of its Series C Preferred Shares by around 59% since December 1st, 2021, via redemptions and conversions.
On April 1st, Derrick Whitfield, an analyst from Stifel, upgraded Centennial Resource Development to “Buy” from “Hold”. Whitfield noted that Stifel's new commodity price forecast and the company's strong free cash flow outlook were the main reason for the upgrade. The analyst believes that the company will experience a further improvement in capital efficiency and cost reduction. With that, Stifel boosted its price target on CDEV shares to $11.20 from $8.40.
Financials Overview & Analysts Estimates
Camber Energy, Inc. last reported its financial results on November 23rd. It is worth mentioning that the latest available financial report for Camber Energy is for the third quarter of 2020 and it submitted a restated report in November 2021. In the first half of 2020, the company's top line decreased 57% year-over-year to $91,147, driven by a significant plunge in the price of oil and gas amid the COVID-19 pandemic.
When it comes to expenses, CEI's total operating costs dropped 36% year-over-year to $1.65 million in 1H2020, mainly because of a decrease in General & Administrative and Lease Operating expenses. On the other hand, the company's net loss increased drastically to $29.6 million in 1H2020 versus $6.5 million in 1H2019 amid the loss on the fair value of derivatives contracts.
As of September 30th, 2020, the company's cash balance stood at $1.11 million. With a cash burn rate of $1.34 million in 1H2020, its liquidity position looks concerning. However, the recent financing agreement should strengthen its liquidity and help avoid dilution.
On May 4th, Centennial Resource revealed an earnings report for the first quarter of 2022. In Q1, the company’s total revenue increased 80.5% year-over-year to $347.2 million, beating Wall Street estimates by $26.38 million. The revenue growth was driven by a 96% YoY increase in Oil sales to $262.8 million amid an increased average realized sales price. Besides, NGL sales advanced 96% YoY to $45.5 million. However, Centennial Resource reported a GAAP EPS of $0.05, missing analysts' consensus by $0.34.
Furthermore, CDEV’s net income stood at $15.8 million during the quarter compared to a net loss of $34.6 million in the year-ago period. It also generated a record free cash flow of $89 million.
For the second quarter, analysts expect CDEV's earnings to be $0.43 a share, up 577.90% year-over-year. Besides, its top line for the current quarter should increase 55.25% YoY to $361.08 million.
Comparing Options Market Sentiment
Looking at the July 15th, 2022, option chain for both CEI and CDEV, let's determine options market sentiment by comparing the calls/puts ratio. In CEI's matter, the open calls/open puts ratio at the $1.00 strike price stands at 5.95x, implying a bullish options market sentiment. The open calls/open puts ratio for CDEV at the $8.00 strike price is 7.16x, indicating a relatively stronger bullish options market sentiment.
Conclusion
While both energy companies should capitalize on the higher commodity prices, I believe that Centennial Resource Development is currently a better investment based on its superior financials, favorable analysts coverage, high forward growth rates, and higher open calls/puts ratio.
CEI shares were trading at $0.72 per share on Monday morning, up $0.04 (+5.26%). Year-to-date, CEI has declined -15.29%, versus a -15.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
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