Coterra Energy ‘s (CTRA) solid third-quarter earnings beat on Thursday, along with hefty free cash flow and a raised dividend, solidified the Club’s investment case in the oil-and-gas producer. Total revenue soared by nearly 500% year-on-year, to $2.52 billion, exceeding analysts’ estimates of $2.37 billion, according to Refinitiv. Adjusted earnings per share more than doubled on an annual basis, to $1.42 a share, beating analysts’ forecasts of $1.37 a share. Note: Coterra management is set to hold its post-earnings conference call at 10 a.m. ET Friday, which we’ll monitor for any updates. Bottom line Coterra continued to return an outsized amount of free cash flow to shareholders: 74% in the third quarter, to be exact. While we’ve worked to moderate our energy exposure in recent months, our two-pronged investment rationale has not changed: 1) Hedge our portfolio against inflation as oil-and-gas prices stay higher for longer and 2) get rewarded for our patience through robust dividend payouts and stock buybacks, which are made possible by those same elevated commodity prices. Coterra hiked its fixed-plus-variable dividend payout on a sequential basis, supporting the second part of our investment thesis. The company was the only one of our three exploration-and-production holdings to do so this earnings season. Pioneer Natural Resources (PXD) and Devon Energy (DVN), by contrast, announced quarter-over-quarter declines to their payouts, due to falling oil prices in the third quarter. But Coterra’s larger natural gas exposure — a key reason we initiated our position in April — proved advantageous in the three months ended Sept. 30. U.S. natural gas prices bottomed out in early summer , before increasing for nearly two months in a row and then falling again more recently. U.S. natural gas futures closed at $6.33 per million British thermal units on Thursday, while West Texas Intermediate crude — the U.S. oil benchmark — settled at $88.17 a barrel. Coterra’s stock was trading down nearly 2% in afterhours trading Thursday, at roughly $30 a share, as the market digested its third-quarter report. Cash flow Cash flow is king for companies like Coterra. Here’s how the Houston-based company did in the third quarter. Cash flow from operations expanded by more than 600% year-over-year, to $1.77 billion, roughly in line with analysts forecasts of 1.76 billion, according to FactSet. Adjusted discretionary cash flow (cash flow from operations excluding changes in assets and liabilities) was $1.52 billion, below estimates of $1.62 billion. Free cash flow , or money the business generates subtracting capital expenditures, was $1.06 billion, short of analysts’ forecasts of $1.16 billion. Capital expenditures of $460 million came in above the $450 million predicted by analysts. Based on recent commodity strip prices, Coterra management expects free cash flow for the full year to be $3.9 billion, compared with the FactSet estimate of $3.83 billion….
Read More: Coterra earnings beat, dividend raise reinforce investment case