Better Buy: Imperial Petroleum vs. Centennial Resource Development

In this article I will analyze and compare Imperial Petroleum vs. Centennial Resource Development to determine which oil & gas stock is currently a better investment.

Shares of energy companies continue to rise in response to investors' concerns about low supplies of refined fuels in the U.S. As a result, U.S. oil prices have risen about 13% to about $111 per barrel over the past month. At the same time, the U.S. government's strategic petroleum reserves plunged to a 35-year-low of 538 million barrels, which also worries investors and analysts.

The high demand for energy stocks is proved by the Energy Select Sector SPDR ETF (XLE) 42.9% gains year-to-date (YTD) compared to S&P 500 Trust ETF’s (SPY) 18.44% loss over the same period.

With this in mind, today, I intend to analyze and compare two Oil & Gas stocks, Imperial Petroleum Inc. (IMPP) and Centennial Resource Development, Inc. (CDEV), to determine which company looks more attractive at current levels. 

Based in Athens, Greece, Imperial Petroleum is a ship-owning company that provides petroleum products and crude oil seaborne transportation services with a cargo fleet capacity of 255,804 dwt. Founded in 2015, CDEV engages in oil and gas exploration and production in the United States. It owns acreage blocks primarily in Reeves County and Lea County

YTD, shares of IMPP have sunk 80%, while CDEV stock advanced around 9% over the same period.

Recent Developments 

On May 17th, Imperial Petroleum announced the pricing of a public offering of 72.72 million units at $0.55 a unit. It is important to note that each unit consists of one share of common stock and one Class C warrant to purchase one share of common stock. With that, IMPP anticipates receiving about $40 million in gross proceeds. However, the company’s share price tanked down 45% during the pre market session after the announcement. 

On May 19th, Centennial Resource Development announced that it had entered into a merger agreement with a private company, Colgate Energy Partners III, LLC. The combined company will have a total production capacity of about 135,000 Boe per day. On the ground of this, management expects to generate a free cash flow of about $1 million in 2023. 

Financials Overview & Analysts Estimates

On March 29th, Imperial Petroleum reported earnings for the fourth quarter of 2021. In Q4, its net revenues decreased 28.2% year-over-year to $4 million, primarily due to the weakening of the tanker market, caused by a sharp drop in time charter and spot rates. Besides, IMPP's fourth-quarter GAAP EPS has been reported at ($0.34). 

The company's net loss stood at $1.5 million in Q4 versus a net income of $0.2 million in the fourth quarter of 2020. Imperial Petroleum's EBITDA for the fourth quarter came in at $0.82 million, implying a 64.8% decrease from the year-prior period.

Finally, its cash and cash equivalents totaled $3.39 million as of December 31st, 2021. Moreover, the company has priced three public offerings in 2022, so it shouldn't face any liquidity problems at least by year-end. 

On May 4th, Centennial Resource declared its financial results for the first quarter of 2022. The company’s first-quarter top-line advanced 80.5% year-over-year to $347.2 million, surpassing Wall Street revenue estimates by $26.38 million. The revenue grew due to a 96% YoY increase in oil sales to $262.8 million, driven by a higher average realized sales price. Also, NGL sales rose 96% YoY to $45.5 million. CDEV revealed a GAAP EPS of $0.05, however, missing analysts' estimates by $0.34.

Besides, the company's net income was $15.8 million in Q1 compared to a net loss of $34.6 million in the year-ago period. It is worth mentioning that Centennial Resource generated a record free cash flow of $89 million.

Analysts covering CDEV forecast that its EPS will advance 600.11% year-over-year to $0.45 in the second quarter of 2022. Besides, Wall Street expects that CDEV's top line for the current quarter should grow 65.69% YoY to $385.35 million. 

Comparing Options Market Sentiment

Looking at the July 15th, 2022, option chain for IMPP and CDEV, let's determine options market sentiment by comparing the calls/puts ratio. In IMPP's matter, the open calls/open puts ratio at the $1.00 strike price stands at 17.79x, implying a solid bullish options market sentiment. The open calls/open puts ratio for CDEV at the $7.00 strike price is 7.5x, indicating a heavy bullish options market sentiment as well.


While Imperial Petroleum and Centennial Resource Development should capitalize on the rally in energy prices, I believe Centennial Resource is a better pick at the moment based on its superior financials, high forward growth rates, and bullish options market sentiment.

IMPP shares were trading at $0.41 per share on Monday morning, down $0.02 (-4.95%). Year-to-date, IMPP has declined -80.84%, versus a -16.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.


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