Coterra Energy’s second-quarter results beat expectations on the top and bottom lines, sending shares modestly higher Tuesday. Still, the report and conference call weren’t enough for us to warm up to this poorly performing stock. Revenue in the three months ended June 30 totaled $1.97 billion, ahead of the $1.7 billion consensus, according to LSEG. Adjusted earnings per share (EPS) came in at 48 cents, topping estimates by 3 cents, LSEG data showed. Shares of Coterra are up about 0.5% Tuesday, overcoming earlier losses of roughly 2%. The stock entered the session down 6.3% year to date, trailing both the S & P 500’s energy sector and the broader index. It’s become a difficult environment for prices of both natural gas and oil, hurting Coterra in the process. The stock’s fortunes this year turned around the time of President Donald Trump’s April 2 tariff announcement, which sent oil prices tumbling as traders recalibrated their expectations for global economic growth. For its part, Coterra’s poor earnings report in early May, marked by operational issues in some of its Texas acreage, sparked another leg lower for the stock and cast another pall over shares ever since. Bottom line As far as the numbers go, Coterra reported a solid quarter driven by higher-than-expected total production. But when you step back and consider the bigger picture — the downbeat market for oil and gas prices alongside the operational hiccup that Coterra is working through — it’s hard to get too excited about the stock. West Texas Intermediate, the U.S. oil benchmark, has slipped around 5% year to date, while natural gas futures are down even more. We trimmed our position on July 8 when shares traded above $25 apiece, and we continue to view Coterra as a stock to trim into any potential strength. There was a short-lived rally in oil prices above $70 a barrel when the Israel-Iran conflict intensified in June. But when tensions simmered and crude retreated, so did Coterra’s share price. “You can’t outrun your commodity, not if both commodities you’re in are bad,” Jim Cramer said Tuesday. We’re reiterating our 3 rating, meaning sell into strength, and lowering our price target on the stock to $28 a share from $30. Commentary As expected, Coterra provided an update on the excessive water levels afflicting some of the wells it drilled in the Harkey sandstone located in Culberson County, Texas. It’s part of the massive Permian Basin, the most prolific oil field in the U.S., spanning West Texas and eastern New Mexico. CEO Tom Jorden said some of the design changes that Coterra implemented are working and the water issue appears localized rather than widespread across its Culberson County land. Indeed, new wells drilled in the Harkey nearby the problematic ones are producing without issue, Jorden said. Nevertheless, the remedied Harkey wells are still not producing meaningful oil volumes, and Jorden said Coterra is being “very conservative” in its production forecast for…
Read More: Coterra’s earnings beat doesn’t change the big picture for the oil producer
