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Diversified Energy Stock Plunges 22% YTD: Should You Buy the Dip?
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Diversified Energy Company Plc’s (DEC - Free Report) shares have lost 22.3% in the year-to-date period, underperforming the Zacks Alternative-Energy industry’s surge of 38.9% and the broader Zacks Oils-Energy sector’s growth of 2.3%. It has also lagged the S&P 500’s return of 21.1%. The company has been grappling with the adverse impact of fluctuating commodity prices. Also, its unimpressive production volume posed an obstacle to its revenue growth.
Image Source: Zacks Investment Research
On the contrary, other industry players, such as Talen Energy Corporation (TLN - Free Report) , Constellation Energy Corporation (CEG - Free Report) and GE Vernova Inc. (GEVO - Free Report) , have delivered a stellar performance. TLN, CEG and GEVO’s shares have surged 179.7%, 127.2% and 30.1%, respectively, year to date.
With the global demand for natural gas projected to rise 2.5% by 2024-end (as predicted by the International Energy Agency), energy investors, particularly those interested in natural gas, might see this as an opportunity to buy DEC, considering the stock’s near-term growth potential and recent acquisitions.
However, in order to assert if it would be prudent to add DEC to your portfolio right now or wait a little longer, let’s delve deeper. This should help us understand what led to the stock’s decline and if there’s any risk to investing in the same.
What Led to DEC Stock’s Recent Downfall?
With the global energy transition underway, there has been a rapid shift in consumers’ preference from fossil fuel to renewable energy, a process that has been impacting the demand of natural gas worldwide. America, being no exception, has also been reflecting a similar trend in the form of dismal natural gas export statistics.
Evidently, in the first six months of 2024, U.S. net natural gas exports remained almost flat year over year, as per the latest Natural Gas Monthly report published by the U.S. Energy Information Administration. This might have been the reason behind DEC registering a 17.6% year-over-year plunge in its total revenues (including settled hedges) during the first half of 2024, while its production volume declined formidably in the same period. The company also suffered a decline in its earnings.
DEC’s financial position does not seem to be very solid at the moment. This might have been another cause of concern for its investors that got reflected in the form of the latest share price decline. As of June 30, 2024, the company’s net debt, worth $1.65 billion, increased year over year, while its cash and cash equivalent of $0.03 billion remained quite insignificant compared to the former.
Will DEC Stock Recover Anytime Soon?
As stated in the International Energy Agency’s latest Gas Market report, growth in global natural gas demand will remain favorable this year, driven by colder winter temperatures and easing prices, with emerging economies leading the increase in consumption. So, the near-term expectation for Diversified Energy Company’s operating results remains solid for the time being.
A quick sneak peek at its 2024 revenue and earnings estimate mirrors a similar picture.
The Zacks Consensus Estimate for DEC’s 2024 revenues reflects an improvement of 7.5% from the prior-year level. The top-line estimate for 2025 also mirrors an encouraging picture.
The Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved north 11.1% and 3.4%, respectively, over the past 60 days. Such an upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
DEC Stock’s Upbeat Estimates
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Trading at a Discount
In terms of valuation, DEC’s forward 12-month price-to-earnings (P/E) is 9.13X, a discount to its peer group’s average of 25.09X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers.
Image Source: Zacks Investment Research
What Lies Ahead?
In a bid to substantially expand its operational capacity and create shareholder value, DEC has been making a handful of meaningful acquisitions over the past couple of years. However, as industries across the board are rapidly adopting renewables as their preferred choice of energy source, the significance of natural gas might diminish significantly over the next few years (as the world proceeds toward its 2050 net-zero emission goal). With DEC’s portfolio heavily inclined toward natural gas and the company’s unimpressive financial position, its opportunities to acquire capital from lenders might be reduced, thereby affecting its strategic acquisition spree.
Although DEC has been following a robust hedging strategy to obtain financial assurance and protection against commodity price fluctuations, unprecedented higher commodity price volatility in the long term or a rapid fall in demand for natural gas might hurt its operational results.
Therefore, despite DEC’s near-term growth prospects, it’s uncertain whether the stock will continue to shine in the long term.
Final Thoughts
To summarize, a prudent investor should wait for a more appropriate time to buy DEC stock, considering its dismal price performance so far this year as well as doubtful long-term growth prospects.
However, those who already own this stock might continue to do so considering its discounted valuation, and upbeat estimates in the near-term. The company currently has a Zacks Rank #3 (Hold), which further supports our thesis.
Image: Bigstock
Diversified Energy Stock Plunges 22% YTD: Should You Buy the Dip?
Diversified Energy Company Plc’s (DEC - Free Report) shares have lost 22.3% in the year-to-date period, underperforming the Zacks Alternative-Energy industry’s surge of 38.9% and the broader Zacks Oils-Energy sector’s growth of 2.3%. It has also lagged the S&P 500’s return of 21.1%. The company has been grappling with the adverse impact of fluctuating commodity prices. Also, its unimpressive production volume posed an obstacle to its revenue growth.
On the contrary, other industry players, such as Talen Energy Corporation (TLN - Free Report) , Constellation Energy Corporation (CEG - Free Report) and GE Vernova Inc. (GEVO - Free Report) , have delivered a stellar performance. TLN, CEG and GEVO’s shares have surged 179.7%, 127.2% and 30.1%, respectively, year to date.
With the global demand for natural gas projected to rise 2.5% by 2024-end (as predicted by the International Energy Agency), energy investors, particularly those interested in natural gas, might see this as an opportunity to buy DEC, considering the stock’s near-term growth potential and recent acquisitions.
However, in order to assert if it would be prudent to add DEC to your portfolio right now or wait a little longer, let’s delve deeper. This should help us understand what led to the stock’s decline and if there’s any risk to investing in the same.
What Led to DEC Stock’s Recent Downfall?
With the global energy transition underway, there has been a rapid shift in consumers’ preference from fossil fuel to renewable energy, a process that has been impacting the demand of natural gas worldwide. America, being no exception, has also been reflecting a similar trend in the form of dismal natural gas export statistics.
Evidently, in the first six months of 2024, U.S. net natural gas exports remained almost flat year over year, as per the latest Natural Gas Monthly report published by the U.S. Energy Information Administration. This might have been the reason behind DEC registering a 17.6% year-over-year plunge in its total revenues (including settled hedges) during the first half of 2024, while its production volume declined formidably in the same period. The company also suffered a decline in its earnings.
DEC’s financial position does not seem to be very solid at the moment. This might have been another cause of concern for its investors that got reflected in the form of the latest share price decline. As of June 30, 2024, the company’s net debt, worth $1.65 billion, increased year over year, while its cash and cash equivalent of $0.03 billion remained quite insignificant compared to the former.
Will DEC Stock Recover Anytime Soon?
As stated in the International Energy Agency’s latest Gas Market report, growth in global natural gas demand will remain favorable this year, driven by colder winter temperatures and easing prices, with emerging economies leading the increase in consumption. So, the near-term expectation for Diversified Energy Company’s operating results remains solid for the time being.
A quick sneak peek at its 2024 revenue and earnings estimate mirrors a similar picture.
The Zacks Consensus Estimate for DEC’s 2024 revenues reflects an improvement of 7.5% from the prior-year level. The top-line estimate for 2025 also mirrors an encouraging picture.
The Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved north 11.1% and 3.4%, respectively, over the past 60 days. Such an upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
DEC Stock’s Upbeat Estimates
Trading at a Discount
In terms of valuation, DEC’s forward 12-month price-to-earnings (P/E) is 9.13X, a discount to its peer group’s average of 25.09X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers.
What Lies Ahead?
In a bid to substantially expand its operational capacity and create shareholder value, DEC has been making a handful of meaningful acquisitions over the past couple of years. However, as industries across the board are rapidly adopting renewables as their preferred choice of energy source, the significance of natural gas might diminish significantly over the next few years (as the world proceeds toward its 2050 net-zero emission goal). With DEC’s portfolio heavily inclined toward natural gas and the company’s unimpressive financial position, its opportunities to acquire capital from lenders might be reduced, thereby affecting its strategic acquisition spree.
Although DEC has been following a robust hedging strategy to obtain financial assurance and protection against commodity price fluctuations, unprecedented higher commodity price volatility in the long term or a rapid fall in demand for natural gas might hurt its operational results.
Therefore, despite DEC’s near-term growth prospects, it’s uncertain whether the stock will continue to shine in the long term.
Final Thoughts
To summarize, a prudent investor should wait for a more appropriate time to buy DEC stock, considering its dismal price performance so far this year as well as doubtful long-term growth prospects.
However, those who already own this stock might continue to do so considering its discounted valuation, and upbeat estimates in the near-term. The company currently has a Zacks Rank #3 (Hold), which further supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.