Pioneer Natural Resources (PXD): Why Hedge Fund Sentiment Remains Strong

With tens of thousands of stocks currently trading on the market, it is quite difficult to determine those that will most likely generate strong returns in the foreseeable future. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are highly-knowledgeable industry experts in addition to being well-connected to other industry and media insiders. Retail investors can piggyback the hedge funds employing these talents and benefit from their vast resources and knowledge. The Insider Monkey team analyzes quarterly 13F filings of more than 700 hedge funds and pools all of that data together to determine the smart money sentiment surrounding different stocks (read more details here). That being said, let’s take a closer look at what smart money thinks about Pioneer Natural Resources (NYSE:PXD).

Is Pioneer Natural Resources (NYSE:PXD) a buy now? Money managers are getting less bullish. The stock was held by one less investor in our database by the end of the fourth quarter than at the beginning, despite us adding about 50 new investment firms to our system during the period. However, those investors hold 21.70% of the company’s shares, which is quite high for a large-cap stock. At the end of this article we will also compare PXD to other stocks including TD Ameritrade Holding Corp. (NYSE:AMTD), KKR & Co. L.P. (NYSE:KKR), and The Progressive Corporation (NYSE:PGR) to get a better sense of its popularity.

The shares of Pioneer Natural Resources (NYSE:PXD) have slumped by 17% over the past 12 months, but they headed into positive territory for 2016 earlier this month. The independent oil and gas exploration and production company’s growth plan for the foreseeable future involves its horizontal drilling activities in the Spraberry/Wolfcamp oil field in West Texas. However, the company also has oil and gas production activities in the Eagle Ford Shale field that is located in South Texas, and the Raton gas field in southern Colorado, to name just a couple. Pioneer Natural Resources (NYSE:PXD) appears to represent an attractive long-term bet on a sustained recovery of crude oil prices, considering the health of its balance sheet. Pioneer had long-term debt amounting to $3.69 billion at the end of December 2015, while its cash on hand totaled a whopping $1.39 billion. Moreover, the company did not have outstanding borrowings under its credit facility at the end of 2015, which means that Pioneer had an additional $1.5 billion of unused borrowing capacity. At the same time, Pioneer Natural Resources (NYSE:PXD) issued 13.8 million shares of its common stock earlier this year from which it received approximately $1.6 billion in cash proceeds, so it is quite hard to question the company’s financial health.

Meanwhile, Pioneer Natural Resources (NYSE:PXD)’s capital expenditures budget for the current year is anticipated to reach $2.0 billion, which includes $1.85 billion for drilling and completions and $150 million for vertical integration, systems upgrades and field facilities. The $1.85 billion figure will be primarily channeled towards oil- and liquids-rich drilling, with a high portion of this capital budget being allocated to horizontal drilling activities in the Spraberry/Wolfcamp field. The 2016 capital budget will be covered with operating cash flow, cash on hand, $500 million in proceeds from a divestiture, and the aforementioned equity issuance. In the worst case scenario, the company can also use its unused borrowings under its credit facility. All-in-all, the company appears to be extremely well-positioned to endure a possible sustained low crude oil price environment.

With all of this in mind, let’s take a glance at the recent hedge fund action regarding Pioneer Natural Resources (NYSE:PXD).

What have hedge funds been doing with Pioneer Natural Resources (NYSE:PXD)?

At Q4’s end, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 2% from one quarter earlier. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or had already accumulated large positions).

Of the funds tracked by Insider Monkey, Andreas Halvorsen’s Viking Global has the biggest position in Pioneer Natural Resources (NYSE:PXD), worth close to $1.17 billion, comprising 4.4% of its total 13F portfolio. The second most bullish fund manager is SPO Advisory Corp, managed by John H. Scully, which holds a $914.8 million position; 16% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions include Ken Griffin’s Citadel Investment Group, Stephen Mandel’s Lone Pine Capital, and Israel Englander’s Millennium Management.

Since Pioneer Natural Resources (NYSE:PXD) has faced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedge funds that slashed their full holdings heading into 2016. At the top of the heap, Seth Klarman’s Baupost Group cut the biggest position of all the hedgies tracked by Insider Monkey, valued at an estimated $503.2 million in call options. Ross Margolies’ fund, Stelliam Investment Management also sold off its call options, about $76.6 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by one fund during the fourth quarter.

The final page of this article reveals the hedge fund activity in other companies that have market values similar to PXD’s.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Pioneer Natural Resources (NYSE:PXD) but similarly valued. These stocks are TD Ameritrade Holding Corp. (NYSE:AMTD), KKR & Co. L.P. (NYSE:KKR), The Progressive Corporation (NYSE:PGR), and Ameriprise Financial, Inc. (NYSE:AMP). This group of stocks’ market caps resemble PXD’s market cap.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $504 million. That figure was $4.07 billion in PXD’s case. Ameriprise Financial, Inc. (NYSE:AMP) is the most popular stock in this table. On the other hand TD Ameritrade Holding Corp. (NYSE:AMTD) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Pioneer Natural Resources (NYSE:PXD) is far more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None