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About Pioneer Natural Resources
There’s something sort of special about silence, right?
This is one of the things that crossed my mind when I was on a road trip to Colorado from Texas, as I drove through a stretch of one of the many plots of land with some vital natural resources stored below, the Permian Basin.
The sections of the territory I saw were flat for the most part, filled with old school oil and gas machinery such as the tried-and-true nodding donkey, like clockwork gulping up and down at a constant rate, extracting liquid out of the ground at its leisure.
As I drove northwestward I imagined what these fields would be like at night and more specifically what it would be like to sit down in the early hours of the morning and stargaze, breathe in the air before dawn and just be as one with the landscape as one can be, relishing the silence and peace with the hypnotic every so often creaking noise generated by pieces of the donkey mechanism and other related equipment frictioning together.
Just for a few moments, getting to feel what it felt like to be a true explorer of the West would be special.
Blissful but adventurous.
At the end of the day, that is one of the reasons I have a special affinity for the Permian Basin.
At that same token, that is not really why troves of oil and gas companies, from the largest, established players (such as ExxonMobil and Chevron) to the lesser known wildcats (entities that drill for oil in areas that aren’t known for having much, if any oil to begin with. They are taking a rather substantial risk and thus, for whatever reason, are termed “wildcats”) have taken a great interest in the land out in West Texas.
They are a little more focused on oil and gas production and particularly, finding hotspots of where there is likely to be considerable amounts of oil and subsequently laying down equipment, extracting it, purifying it, transporting it and ultimately commercializing it, all with the hopes of lengthening the project’s cash flow generation.
Of course, profits tend to follow.
This is essentially what the little known but mighty powerful oil and gas conglomerate we’ll be discussing today, headquartered in the great state of Texas, of course, does to generate its revenues, cash flows and eventually, profits.
Welcome to the fold, Pioneer Natural Resources.
Although this company has a strong presence in the Permian (it actually has been listed as the top producer in the region in past years), it still has a lot of competition in the region, including the likes of BPX Energy (owned by British Petroleum, commonly referred to as BP), Centennial Resource Development, ConocoPhillips, Chevron, Diamondback Energy, Devon Energy, Occidental and Shell among others.
Some of the entities that make Pioneer what it is today include Parsley Energy (acquired for $4.5 billion) and DoublePoint Energy (acquired for $6.4 billion) among a few other operators.
But as many have said in the past, eventually, the big fish eats the little fish and the big fish continues to get bigger, and with that there have been rumblings in the mergers and acquisitions (M&A) community that the largest oil and gas producer in the United States, soon to be Houston-based (the company is in the process of moving from Irving, Texas) ExxonMobil is considering a full buyout of Pioneer Natural Resources.
This would more than likely make ExxonMobil the largest oil and gas producer and operator in the Permian and thus, from our vantage point, we certainly sense a formal bid is imminent for the company and all of its assets, even though we are in the early stages of this seismic-style deal being closed.
Suffice it to say this would be an incredible opportunity for ExxonMobil (which has a substantial amount of cash on its balance sheet) to deepen, widen and in all senses of the phrase establish its presence in the historically profitable, not-so-dry Permian Basin.
That’s what’s new with Pioneer Natural Resources and a little bit about what the company does and where it operates.
Regardless of whether or not acquisition proceedings continue, let’s look at this company solely on its core financial merits and figure out whether or not its stock (NYSE: PXD) is worth considering an investment in for the months, years and decades to come.
Pioneer’s stock financials
As outlined in previous stock analysis articles regarding oil and gas companies, a de facto prerequisite (in our opinion) of seriously pondering an investment in the sector is being fully aware of the fact that these companies are, for the most part, price takers, meaning their profits and initial revenue generation largely hinge on what the prevailing price of oil is today, tomorrow, and the next day and, you guessed it, the next days.
Sometimes, this is great for the aforementioned companies, as it affords them the ability to maximize their profits in a more than meaningful way, however, on the other hand, when demand for oil and other related products plummets, as it did with the public onset of COVID-19, prospects of unhampered profitability tend to rapidly shrink and all we can say is that we’d not want to be one of the companies banking on steady demand, only to find themselves ill prepared for a downward surprise and subsequently, filing bankruptcy a few weeks following the slump in demand.
This being the case, let’s get a better feel for just how prepared Pioneer Natural Resources is.
To get things formally kicked off, the company has a market capitalization of $52 billion, a share price of $222.44, a price-to-earnings (P/E) ratio of 7.17 all while dishing out an annual dividend of a monstrous $27.24 to its shareholder base.
According to the company’s dividend, free cash flow (FCF) generation is real with this company.
Much larger oil and gas companies like ExxonMobil and Chevron offer their shareholders annual dividends in the neighborhood of $5 per annum, so hopefully you can see why we think Pioneer’s is worth pointing out.
This being said, we wouldn’t be surprised in the slightest if another public health emergency such as COVID-19 surged again, taking steady demand right under the feet of oil and gas companies, forcing a company like Pioneer to cut its dividend in order to retain cash.
This is just another consideration to be comfortable with.
Double-digit dividend or not, one should be comfortable in Pioneer Natural Resources and its core assets, not just excited about the prospects of receiving a significant dividend payment each quarter.
Nevertheless, we’re also happy to find that this company’s share price appears to be quite undervalued given that its P/E ratio is well below the average or fair (intrinsic) value benchmark of 20.
Now onto one of the main courses for this evening, Pioneer’s balance sheet.
According to TD Ameritrade’s platform, the company’s executive team is tasked with tending to approximately $35.7 billion in terms of total assets as well as around $13.2 billion in terms of total liabilities.
The general state of this company’s balance sheet is nothing short of fantastic, as it is cash-heavy and has, through the thick and thin of the past few years, managed to keep its balance sheet robust and recession ready as can be.
As it relates to Pioneer’s income statement, its total annual revenue since 2018 has seen its fair share of greater overall fluctuation, as it stood at a low of just north of $7 billion in 2020 (which makes sense given the state of the world at the time) to a high of nearly $24.4 billion as of its most recent report (according to TD Ameritrade’s platform), at the end of 2022.
Like we said before, it’s all about demand.
Nevertheless, more than tripling one’s total annual revenue within a relatively short span of time is still impressive.
Moving right along to the company’s cash flow statement, we can see much of the same as 2020 wasn’t the company’s best year given that its net income stood at -$200 million and its total cash from operations at just about $2.1 billion, however, as seen in this company’s revenue figures, the rebound was strong and the following year its net income climbed to $2.1 billion and its total cash from operations to just more than $6 billion.
Supply and demand.
Pioneer’s stock fundamentals
Focusing the vast majority of its operations in the great state of Texas and zooming in even more into the promise of the Permian has its perks.
One of which includes having a tremendous amount of real estate and extended operating capabilities in one of America’s most prosperous oil and gas territories.
With that, comes the great benefit of a sweet trailing twelve month (TTM) net profit margin that trumps that of the industry’s average.
By a lot.
Specifically, according to TD Ameritrade’s platform, the company’s TTM net profit margin towers that of the average of its peers at 32.17% to the industry’s 3.06%.
This is one of the largest TTM net profit margin differences we have ever seen between a single company and the average of its peers.
The company’s specialization in the United States’ arguably most oil and gas-filled plot of West Texas land has apparently served it extremely well on the profit front.
Lastly, when it comes to the company’s TTM returns on assets and investment(s), Pioneer’s are both above the industry’s averages, although not by wide margins like its previously listed TTM net profit margin, yet are competitive nonetheless.
Should you buy Pioneer Natural Resources stock?
No wonder oil and gas powerhouse ExxonMobil is allegedly on the hunt for Pioneer and all of its assets in the Permian Basin.
The company’s relative TTM net profitability is first class, its balance sheet is in fantastic shape, it offers its current shareholder base an attractive dividend (that it can seemingly afford at this current moment in time) and it practically dominates one of the world’s most valuable oil and gas goldmines.
Barring external variables such as fluctuating input prices that every oil and gas company, of all shapes and sizes, has to contend with, this company is set up for success, whether it gets wholly acquired or not.
Given all of this information, we give Pioneer Natural Resources stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.