Valued at a $7.55 billion market cap, Matador Resources Company (MTDR) is an independent energy company that engages in the exploration, development, and acquisition of oil and national gas resources. Its shares got a significant boost from solid first-quarter results with higher-than-expected production while lower operating expenses.

During the quarter, Matador’s total oil and natural gas production averaged around 149,760 barrels of oil and natural gas equivalent (BOE) per day, 3% better than its announced guidance of 145,750 BOE per day. Its average oil production of 84,777 barrels per day was 2% better than its guidance average of 83,500 barrels per day.

Meanwhile, MTDR’s drilling, completing, and equipping capital expenditures for the first quarter were nearly $35 million less than expected. The cost savings were due to continued operational and cost improvements by the drilling, production, and midstream teams.

Moreover, the company announced during the first quarter that the natural gas pipeline connections between Pronto and San Mateo and between Pronto and our Advance acreage were completed on time and within budget. After the completion, Pronto and San Mateo have a combined 595 miles of a three-stream pipeline system, including the midstream assets from the Advance acquisition.

Joseph Wm. Foran, Matador’s CEO, commented, “Matador is pleased to report another quarter that exceeded our original expectations due to the excellent operational and financial execution by the Matador team. This outcome reflects a total team effort and a long-term approach to managing Matador’s business that has resulted in Matador outperforming the S&P 500, our peer group and the price of crude oil over the last three years.”

“Going forward, we remain focused—as a team—on profitable growth at a measured pace, which has resulted in over 30% oil production growth annually since we became a public company in 2012,” Foran added.

For the full year 2024, Matador expects to achieve the high end of its previously announced average production guidance for oil of 91,000 to 95,000 barrels per day, natural gas of 370 to 386 million cubic feet per day, and total average 2024 production of 153,000 to 159,000 BOE per day.

Shares of MTDR have gained 4.4% over the past six months and 6.4% over the past year to date to close the last trading session at $60.51. However, the stock has plunged 2.5% over the past month.

Let’s look at factors that could influence MTDR’s performance in the upcoming months.

Recent Strategic Acquisition

On June 12, MTDR announced that its wholly-owned subsidiary entered an agreement to acquire a subsidiary of Ameredev II Parent, LLC, including certain oil and natural gas-producing properties and undeveloped acreage in Lea County, New Mexico and Loving and Winkler Counties, Texas. The acquisition also includes around 19% stake in Piñon Midstream, LLC.

After the acquisition’s closing, Matador expects to have 190,000 net acres in the Delaware Basin, production of over 180,000 barrels of BOE per day, proved oil and natural gas reserves of 580 million BOE, and an enterprise value above $10 billion. This strategic move will be accretive to key financial and valuation metrics.

Mixed Financials

For the first quarter that ended March 31, 2024, MTDR’s total revenue increased 40.6% year-over-year to $787.69 million. That beat the analysts’ revenue estimate of $734.24 million. Its adjusted EBITDA rose 38.4% from the year-ago value to $505.40 million. Its adjusted net income grew 14.6% from the previous year’s quarter to $206.20 million,

Furthermore, the company’s adjusted EPS was $1.71, compared to the consensus estimate of $1.52, and up 14% year-over-year. However, its adjusted free cash flow was $28.60 million, down 50% from the prior year’s period. Also, as of March 31, 2024, MTDR’s current liabilities increased to $851.34 million, compared to $685.28 million as of December 31, 2023.

Impressive Historical Growth

Over the past three years, MTDR’s revenue has grown at a CAGR of 46.4%. The company’s total assets have increased at a CAGR of 30.1% over the same period, and its EBITDA has improved at a 71.9% CAGR. Furthermore, the company's operation income (EBIT) has grown at a CAGR of 173.6% over the same timeframe.

Favorable Analyst Expectations

Analysts expect MTDR’s revenue and EPS for the second quarter (ended June 2024) to grow 30.2% and 26.2% year-over-year to $830.54 million and $1.79, respectively. Moreover, the company surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending December 2024, Street expects MTDR’s revenue and EPS to grow 25.3% and 15.2% from the prior year to $3.52 billion and $7.80, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 20.9% and 20.2% year-over-year to $4.25 billion and $9.38, respectively.

High Profitability

MTDR’s trailing-12-month gross profit margin of 80.19% is 79.1% higher than the 44.78% industry average. Also, the stock’s trailing-12-month levered EBITDA margin of 73.77% is 116.7% higher than the industry average of 34.04%. However, its trailing-12-month net income margin of 31.03% is 171.6% higher than the industry average of 11.43%.

Additionally, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 22.86%, 14.18%, and 10.66% are 66%, 87.8%, and 90.2% higher than the industry averages of 13.77%, 7.55%, and 5.60%, respectively.

Mixed Valuation

In terms of forward non-GAAP P/E, MTDR is trading at 7.76x, 30.9% lower than the industry average of 11.23x. The stock’s forward EV/EBITDA multiple of 4.11 is 29.7% lower than the industry average of 5.85. Likewise, its forward Price/Cash Flow of 3.46x is 35.6% lower than the industry average of 5.37x.

However, the stock’s forward Price/Sales multiple of 2.15 is 47.7% higher than the industry average of 1.45. Also, its forward EV/Sales of 2.77x is 32.4% higher than the industry average of 2.09x.

POWR Ratings Reflect Uncertainty

MTDR’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MTDR has a B grade for Quality, in sync with its higher-than-industry profitability. However, the stock has a C for Value, consistent with its mixed valuation.

Also, MTDR has a D grade for Stability, justified by its 60-month beta of 3.30.

Within the Energy- Oil & Gas industry, MTDR is ranked #35 out of 79 stocks.

Beyond what I have stated above, we have also given MTDR grades for Sentiment, Growth, and Momentum. Get all MTDR ratings here.

Bottom Line

MTDR reported solid first-quarter results that exceeded expectations due to outstanding operational and financial execution. While its attractive asset portfolio, strategic investments, and efficient operations position it for long-term success, MTDR faces challenges in effectively managing its debt and is exposed to volatility in commodity prices, particularly oil and natural gas.

Given its debt burden, mixed valuation, and uncertain near-term outlook, waiting for a better entry point in this stock seems prudent.

How Does Matador Resources Company (MTDR) Stack Up Against Its Peers?

Given its near-term uncertain prospects, the odds of MTDR outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three A (Strong Buy) or B-rated (Buy) stocks from the Energy- Oil & Gas industry:

Secure Energy Services Inc. (SECYF)

PrimeEnergy Resources Corporation (PNRG)

Cenovus Energy Inc. (CVE)

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

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MTDR shares were unchanged in premarket trading Friday. Year-to-date, MTDR has gained 7.11%, versus a 16.76% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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