Can Jagged Peak Energy Stock Make a Comeback?

The recent uptick in oil prices has failed to bring relief to investors in Jagged Peak Energy [stock_market_widget type="inline" template="generic" color="default" assets="JAG" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] as the company’s weak earnings performance continues to hang heavy on confidence. The oil producer had missed estimates on both top and bottom lines the last time it reported results, but investors might have made a mistake by dumping the stock.

Let’s see why.

Jagged Peak is Operationally Sound

During the first quarter of 2019, Jagged Peak Energy delivered oil production of 28.1 MBbls per day. This represents an increase of 29% year over year. Overall production volumes increased 33% as compared to the year-ago period.

However, weak oil prices turned out to be an Achilles heel for Jagged Peak. The company was hamstrung by a 24% decline in the combined unhedged realized price during the first quarter, as a result of which its revenue remained almost flat as compared to the year-ago period.

Jagged Peak tried its best to offset the weak oil pricing scenario. It reduced its drilling, completion, and equipment costs to just $1,300 per lateral foot during the quarter. By comparison, Jagged Peak’s D&C cost averaged $1,450 an ounce last year. Looking ahead, investors can expect further drops in the company’s costs as it expects its D&C costs to average $1,250 a lateral foot in 2019.

There was a lot to like for the company during the quarter — the only sore point being weak oil prices. But the good part is that oil prices have started rising once again.

All Set to Step on the Gas

WTI crude oil is close to hitting $60 per barrel once again, driven by the potential truce between the U.S. and China in their trade war. But this is not the only catalyst for oil prices, as OPEC and its allies are expected to continue supporting the price of the commodity.

As reported by CNBC:

“If Russia, Saudi Arabia and the other key OPEC members keep production at the levels they produced in H1-19 they will ensure that the global oil market is not flowing over. They will only have to pay a small restraint while reaping a nice oil price of $60-70 a barrel,” said SEB’s Bjarne Schieldrop.

If oil keeps rising or at least maintains the $60 per barrel mark, don’t be surprised to see an improvement in the financial performance of Jagged Peak Energy. In fact, analysts expect the company’s revenue growth to take off next year, rising to the tune of more than 30%. Similarly, earnings growth is expected to take off as well.

All of this seems possible in a scenario where oil prices get better, and the good news is that such situations already persist in the market. So Jagged Peak investors would do well to build their long positions right now before the stock takes off in the future.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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