It has been a month since Callon Petroleum’s latest earnings report (CPE). CPE stock lost more than 67% in that time frame, and are underperforming S&P 500. Many investors of CPE stock and bonds are wondering what to do. Some investors may think CPE may be a great value right now.
Unfortunately, Callon Petroleum (NYSE: CPE) is in deep trouble because of oil prices. The oil price war is far over, and it is destroying American oil businesses. CPE is just another victim.
There are two reasons we are extremely worried about CPE. The first is the negative Downgrade From Moody’s – Negative Outlook.
Moody’s Investors Service (“Moody’s”) reduced Callon Petroleum’s Callon Petroleum (Callon) to B3 from B1, default rating (PDR) to B3-PD from B1-PD and ratings on its unsecured notes to Caa1 from B2. The Speculative Class Liquidity Rating (SGL) was reduced to SGL-3 from SGL-2. Expectations were adjusted to negative from stable.
“The downgrade of Callon Petroleum’s ratings reflects the decline in commodity prices and the impact it will have on the company’s cash flows and liquidity,” stated James Wilkins, Moody’s Vice President.
The second reason, and biggest concern, is that Callon Petroleum’s business plan that can not survive on $20 a barrel oil. CPE does have enough revenue and can restructure to hold on temporarily, but it won’t last forever.
Stock Market Recap
U.S. equity markets finished the day lower, with the S&P 500 -4.41%, the Dow -4.44% , the Nasdaq -4.41%, and the Russell 2000 -7.05%.
U.S. markets fell for the third time in four days.
Asian markets dropped. Caixin China manufacturing purchasing managers’ index data for March was stronger than expected, rebounding into expansion territory. Japanese markets closed lower on concerns the coronavirus outbreak was ramping up in Tokyo. Japan’s Tankan survey of business confidence for the first quarter beat expectations but fell sharply versus the prior period’s data.
European markets declined . Markit Eurozone final manufacturing purchasing managers’ index data for March was weaker than the initial reading. France is pushing for a common European Union rescue fund to help countries fight the economic damage from the coronavirus. Italy’s new coronavirus cases spiked higher today. The country reported the number of new infections 4,782 versus yesterday’s 4,053.
U.S. markets fell again on virus fears . President Donald Trump said the next two weeks will be difficult in the coronavirus fight as officials reiterated the death toll could reach as high as 100,000 to 200,000. The Federal Reserve’s Loretta Mester said first-half domestic economic activity is likely to be ‘very bad.’ ADP employment data was stronger than expected for March, but was still the weakest since September 2017. And the job market is likely to get worse from here as the COVID-19 pandemic continues to force layoffs. Speaking on CNBC, Treasury Secretary Steven Mnuchin said the popularity of the Phase 3 stimulus bill could cause so many small businesses to receive loans that it runs out of money. If this were to happen, further small business support would be a central point of a Phase 4 stimulus deal.
The European Union is taking steps to ensure people stay in their jobs.
The top sectors today were consumer staples, communication services, and materials. Kroger (KR) led the staples sector, after reporting a 30% jump in March sales due to the coronavirus pandemic. This boosted other staples sellers like Walmart (WMT) and Costco (COST). T-Mobile (TMUS) buoyed the communications services sector, after finally closing out its merger with telecom rival Sprint.
The worst performing sectors were real estate, utilities, and financials. American International Group (AIG) weighed on financials after getting its price target cut at both Wells Fargo and Morgan Stanley. Airlines underperformed as investors continue to predict an extended demand shock to the industry. Macy’s (M) tumbled on news that it will be removed from the S&P 500 index on Monday.
In the S&P 500, all 11 sectors finished lower.
The leading sectors were Consumer Staples -1.80%, Health Care -3.81%, and Communication Services -3.93%.
The laggards were Real Estate -6.13%, Utilities -6.10%, and Financials -5.94%.
Oil +2.25% gained on continued hopes for an end to the Russia-Saudi Arabia price war.
Gold +0.34% rose as investors rotated into haven assets.
Bitcoin -4.02% declined as bitcoin transactions reportedly fell in the first quarter.
Tomorrow, we’re on the lookout for Challenger Layoffs for March, Initial, Continuing Jobless Claims, Factory Orders, Inventories for February, and earnings from Walgreens Boots Alliance (WBA).