Shareholders have been rewarded. Between the beginning and end of the first quarter, the stock prices of the companies in our sample increased by an average of 20%, while the broader markets were up by about 6%.
As the earning season unfolded, the breakdown of questions that analysts asked in the broad categories of strategy, operations and finances was consistent with where it has been in previous quarters. Financial matters (attempts to glean more detail about this quarter’s results and predict future results) were the focus of over half of the questions analysts asked. Operational questions were 16% of the total, and strategic questions made up the rest at 31%.
Ability to generate cash
Financial questions were focused intently on company performance, production cost and the ability of companies to generate cash. Those matters attracted heightened interest as the industry emerges from the COVID-19 downturn and begins to generate cash again.
As usual, the center of attention was corporate performance, with upstream projects following far behind. A surprisingly large number of questions was related to the performance of renewable energy businesses, and we should expect more frequent and pointed questions from equity analysts as they become a bigger part of company portfolios.
Ultimately, all financial questions led to companies’ choices about capital return vs. capital expenditure. The timing and triggering events for stock buyback were the subject of several queries, as was the possibility of restoring dividends that were cut to preserve cash as the crisis unfolded. The trade-off between capital spending and capital return was, as always, in focus.
Focus on upstream projects
Operational questions were mainly focused (more than half) on upstream projects. Typical queries included the impact of schedule delays on production, with a large percentage of those questions dealing with the effect of COVID-19 outbreaks.