Texas-based energy stock Matador Resources is in a late-stage base and Thursday's IBD 50 Stocks To Watch pick.
Matador explores, develops and produces crude oil and natural gas shale in the southwestern Permian Basin.
It focuses primarily on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin of southeast New Mexico and west Texas. Other properties include the Eagle Ford shale play in south Texas, and the Haynesville shale and Cotton Valley plays in northwest Louisiana.
The company holds the second spot out of 56 stocks in the Oil & Gas-U.S. Exploration & Production industry group, which has dropped to 125th out of 197 IBD groups IBD, from 69th four weeks ago.
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Energy Stock Builds Another Base
The energy stock is grinding through a cup-with-handle base with a 69.51 buy point, as seen on the MarketSmith chart. The 13% deep handle is slightly worse than the ideal 8%-12% depth outlined by William O'Neil in "How to Make Money in Stocks."
The stock is in a fifth-stage base. Later-stage patterns carry more risk, with higher likelihood to fail than first- or second-stage consolidations.
Shares are above the 50-day moving average and lifted above the 21-day exponential moving average Tuesday, as crude oil futures had a strong day. The energy stock has gained more than 8% in 2023 so far.
The stock's strong 86 Relative Strength Rating has been rising.
Energy Stock Closes New Acquisition
Matador has entered into an agreement to buy Advance Energy Partners for $1.6 billion, plus $7.5 million for each month in 2023 that crude oil averages above $85 per barrel. The deal is now in effect.
The acquisition includes oil and natural gas properties and undeveloped land in Lea County, New Mexico and Ward County, Texas, adding approximately 18,500 contiguous net acres in the Delaware Basin.
"We have carefully managed and strengthened our balance sheet over time in order to be in a position for a special opportunity like this," said Joseph Wm. Foran, Founder, Chairman and CEO.
Earnings Growth Decelerates
FactSet estimates earnings of $1.98 per share for the December-ended quarter, down from $2.68 in September. It is then expected to drop to $1.96 in March. The trend shows decreasing growth.
Matador posted triple-digit quarter-over-quarter EPS growth for multiple consecutive quarters, slowing to 114% last quarter. If met, the $1.98 per share profit would equal a smaller but strong 57.5% increase over the prior year's quarter.
Full-year 2022 EPS is forecast to grow to $10.46, up from $4.24 in 2021. A more sedate $9.33 is expected this year.
Matador beat last quarter's EPS estimate by about 7% but quarter-over-quarter growth trends are declining. The company is scheduled to report Q4 earnings Feb. 21.
Sales are expected to decline to $650.4 million in Q4, from $840.9 million in Q3 and $943.9 million in June. Sales of $650.4 million would equal 14.8% growth over the prior year's quarter, down from 78% last quarter, and triple-digit growth in the previous five quarters.
Mutual funds own 64% of shares, with 692 funds holding the energy stock in December, up from 657 in September and 638 in June, a positive sign for the stock.
Committed To Reducing Emissions And Saving Water
Matador reduced greenhouse gas emissions intensity by over 25% from 2020 to 2021, and reduced exploration and production (E&P) emissions by 45% in the same time period.
It increased recycled water use by 96% in 2021. The company affirms that drilling practices follow strict guidelines to protect groundwater.
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