HighPoint Resources [stock_market_widget type="inline" template="generic" color="default" assets="HPR" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has been beaten down badly over the past year, losing 40% of its value on the stock market thanks to the uncertain oil price environment. Investors, however, seem to be ignoring the fact that the company is coming off a solid year where it delivered outstanding production growth that translated into terrific financial gains.
Their excellent performance was evident from the company’s latest results, however, the problem was that they were not up to market’s expectations. Let’s take a closer look at HighPoint’s quarterly and annual performance, and see if investors are missing an opportunity.
Bump in Oil Production Translates to Financial Gains
HighPoint delivered an average daily production of 33,826 barrels of oil equivalent (BOE) per day for the fourth quarter of 2018, an increase of nearly 47% from the prior year period. Its annual production came in at 27,866 barrels of oil equivalent per day, an increase of 45% over 2017.
Thanks to this massive increase in production, HighPoint delivered fourth-quarter revenue of $131 million, an increase of almost 57% over the prior-year period. HighPoint was also aided by stable realized prices during the quarter, clocking a price of $40.29 per BOE during the quarter as compared to $39.90 per BOE during the prior-year period.
The combination of stable pricing and higher production helped the company post an adjusted net income of $0.01 per share during the quarter as compared to the massive loss of $0.48 per share in the year-ago period. But because HighPoint missed Wall Street’s expectations, investors are probably not looking at all the positives the company delivered last quarter.
What’s more, HighPoint seems well placed to sustain its impressive growth in 2019 considering its most recent guidance.
Expect More Strong Growth in 2019
HighPoint will continue to boost its production in 2019. The company’s production guidance of 12.5-13.0 MMBoe represents a 25% increase over 2018 levels at the mid-point, aided by the company’s decision to spud around 100 gross wells, as well as placing around 85 gross wells on flowback.
More importantly, HighPoint expects a 10% reduction in drilling and completion costs per well on the back of higher execution efficiency and changes in design. The company also plans to spend between $350 million and $380 million as capital expenses this year, which represents a substantial decline over last year’s outlay of $509 million.
So HighPoint is set to deliver more production at lower costs, which will help it deliver positive cash flow in the second half of the year. Moreover, the oil pricing scenario has improved this year. West Texas Intermediate (WTI) oil price is trading around $56 per barrel at the time of this writing, which is well above the $50 forecast HighPoint is assuming for the year.
Not surprisingly, analysts expect HighPoint’s growth to accelerate this year as compared to 2018. Moreover, the company is expected to deliver an adjusted profit of $0.43 per share as compared to the full-year adjusted loss of $0.03 for last year.
As such, investors should consider using the drop in HighPoint Resources stock to build a long position because it is sitting on several catalysts that will drive growth.
