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Welcome to edition 39 of C-Suite Transitions, a weekly series on InsideArbitrage that tracks appointments and departures at publicly traded companies during the prior week. We highlight five appointments and departures each week by picking the largest companies from the full list of management changes.
Sudden Departures
US Shale Producer Pioneer’s Founder and CEO Scott Sheffield To Retire
Pioneer Natural Resources Co. (PXD)
Last month, I discussed Pioneer Natural Resources in our April Mid-Month article titled The Mother Fracker Is In Play and wrote the following:
Pioneer Natural Resources is a oil and gas fracking company that is the most active driller and largest oil producer in the state of Texas (as of 2/8/2023) with the largest amount of continuous acreage in the Permian Basin. The company was also the star of David Einhorn’s Sohn Conference presentation in 2015 called “Meet the Frackers”.
We picked a fracking company, Continental Resources, as a spotlight idea for our August 2020 Special Situations Newsletter following insider purchases by its founder Harold Hamm. The position turned out the most profitable one in the model portfolio when we exited for a gain of nearly 330% when Harold Hamm took the company private in November 2022. The other fracker in our portfolio is Diamondback Energy (FANG), which we discussed in our October 2021 newsletter following a large $2 billion buyback announcement by the company and it is currently up 55% in the model portfolio.
We wrote the following about Diamondback Energy and frackers in general in that October 2021 newsletter:
What was remarkable about this buyback announcement was that it was coming from a fracking company. When I think of fracking companies, the first thing that comes to mind is the hilarious “meet the frackers” presentation by Einhorn at the Sohn Conference in 2015. I have a great deal of respect for Greenlight Capital’s David Einhorn and I enjoyed reading his book Fooling Some of the People All of the Time, A Long Short Storyabout his multi-year battle shorting Allied Capital. For a period of time, Einhorn was right about the frackers as they continued to consume ever increasing amounts of capital to drill holes, flood the energy market with excess supply and got hurt by an OPEC engineered price war.
However, this has changed in recent years with companies like Continental Resources and Diamondback Energy reigning in costs and being selective about CapEx. The huge rebound in the price of WTI has helped and instead of drilling more and increasing CapEx, companies like Diamondback are now focused on returning value to shareholders through buybacks and increasing dividends.
While crude oil prices have dropped a lot since June 2022 and the frackers have also seen their stocks pull back from the peak, they continue to generate record profits at oil prices over $80 and have been consistently returning capital to shareholders through regular dividends, special dividends and buybacks.
Pioneer Natural Resources pays a quarterly dividend of $1.10 per share, which works out to a modest dividend yield of 1.9%. However once you include variable dividends, the company ended up paying out $25.43 per share in total dividends in 2022. This is in addition to a 3.51% reduction in shares outstanding over the last four quarters through buybacks.
A combination of increasing cash flows and repayment of debt had left the company with very manageable net debt of $3.9 billion. Debt maturities are well staggered with $750 million in debt due in 2023, $962 million in 2025 and the rest beyond that at very low interest rates. The company generated $7.43 billion in free cash flow last year despite spending $3.92 billion on CapEx.
Production and Valuation
The company has a pretty good distribution between oil, natural gas and natural gas liquids (NGLs) where 54% of its production is oil and the rest is natural gas and NGLs. To provide a uniform scale of measurement and understand production, natural gas and NGL production is often reported as “oil equivalent barrels”. During 2022, the company produced 650 thousands barrels of oil equivalent per day (MBOEPD) and provided guidance for production to reach 670 to 700 MBOEPD in 2023. The company expects to generate about $9 billion in operating cash flow and over $4 billion in free cash flow in 2023.
Pioneer Natural Resources’s enterprise value is $58 billion, implying it is trading at about 6.44 times expected operating cash flow in 2023 or about 14.5 times free cash flow.
Scott D. Sheffield
Mr. Sheffield joined Parker & Parsley Petroleum Co. in Midland, Texas, as the fifth employee in 1979. In 1985, he was appointed CEO, and in 1991, he was appointed Chairman. Parker & Parsley merged with MESA, Inc. in 1997 to become Pioneer Natural Resources, led by Mr. Sheffield as the company’s founding CEO.
Mr. Sheffield served as Pioneer’s CEO from 1997 until 2016 and as its Chairman from August 1999. Mr. Sheffield left the company in 2016 but returned as President and CEO three years later in 2019 and remains on the board.
Following his retirement as CEO Mr. Sheffield is expected to remain with the company as a member of the Board.
Richard P. Dealy
On April 21, 2023, the Board unanimously approved a succession plan under which Richard P. Dealy will succeed Mr. Sheffield as the company’s CEO, effective as of January 1, 2024.
Dealy “has been with me for over 30 years and he has participated with me in every decision the company has made,” Sheffield said. Pioneer has been working on a succession plan since he returned to the helm four years ago.
Mr. Dealy, President and Chief Operating Officer has held positions in practically all business and operational areas at Pioneer and its predecessor company. In January 2021, Dealy was named President and COO. He has previously held the positions of Executive Vice President and Chief Financial Officer from November 2004 to December 2020. During his time at Pioneer, the company grew to become the state of Texas’s top oil producer, and successfully integrated the Parsley and Double Point Energy acquisitions.
“I’m honored to succeed Scott as CEO and look forward to working with him on the Board,” said Rich Dealy. “For over 30 years, Pioneer and its amazing people, along with this exciting and vitally important industry, have defined my professional life. I am thrilled by the opportunity to lead our world-class Company– delivering on the strategy that we’ve laid out, creating value for our shareholders, and continuing to nurture a culture that makes Pioneer one of the best and most rewarding places in our industry to work.”
Acquisitions and Deal Rumors
In 2020, Parsley Energy (PE) agreed to be acquired by Pioneer Natural Resources (PXD) in an all-stock deal valued at roughly $4.5B. In 2021, Pioneer Natural Resources agreed to acquire privately held DoublePoint Energy, expanding its Permian Basin acreage in a deal valued at $6.4B.
Pioneer Natural Resources was up last month following a report by the Wall Street Journal that Exxon Mobil had held preliminary talks with Pioneer Natural Resources.
In February 2023, prior to Pioneer’s denial, Bloomberg reported that Pioneer Natural Resources (PXD) was allegedly considering buying Range Resources (RRC). Range Resources also announced its CEO’s retirement.
During the earnings call, Sheffield was questioned about why it had responded to a rumor that it was considering purchasing Range Resources but had not responded to the ExxonMobil rumor.
“We saw our stock get down to $180 [on the Range news],” Sheffield replied. “That’s the only reason we went away from ‘no comment.”
Bloomberg reported that Mr. Dealy, the incoming CEO also declined to comment on speculation that Exxon Mobil Corp. has been in early-stage talks to buy Pioneer.
In March 2023, Jeff Ventura, CEO of Range Resources (RRC), announced his retirement, effective June 2, 2023. After serving for almost 20 years, Mr.Ventura is stepping down and announced that he will not seek reelection to the Board. Similar to Pioneer, Range’s Board of Directors has selected Chief Operating Officer Dennis Degner to assume the role of President and Chief Executive Officer effective at the company’s annual shareholder meeting on May 10, 2023.
Given this latest twist with Mr. Sheffield retiring and the appointment of Mr. Dealy as CEO, the prospect of Pioneer remaining in play for a deal with Exxon appears to be dimming.
Dividend and Share Repurchase
On April 26, 2023, Pioneer Natural Resources (PXD) announced that its Board of Directors declared a quarterly based-plus-variable cash dividend of $3.34 per common share. This is a 40% drop from the most recent dividend payment of $5.58 per share. Pioneer Natural Resources pays a quarterly dividend of $1.25 per share, which works out to an annual yield of 2.39% at current prices and a payout ratio of 97.42%
Pioneer Natural Resources Reports First Quarter 2023 Results (Earnings)
Pioneer has cash on hand as of March 31, 2023, of $1.2 billion and net debt of $4.7 billion. The company had $3.2 billion of liquidity as of March 31, 2023, comprised of $1.2 billion of cash and a $2.0 billion unsecured credit facility (undrawn as of March 31, 2023).
Cash flow from operating activities during the first quarter was $2.3 billion, leading to a free cash flow of $948 million.
Beginning with the second quarter’s free cash flow, the company has improved its capital return strategy. Through a combination of base-plus-variable dividends and opportunistic share repurchases, Pioneer expects to return at least 75% of quarterly free cash flow to shareholders under the modified framework. After paying the base dividend, capital gains will be distributed to variable dividends and opportunistic share repurchases from the remaining 75% of quarterly free cash flow. About 25% of the remaining quarterly free cash flow will be applied to the balance sheet.
Outlook 2023 (Investor Presentation)
The company anticipates spending $4.45 to $4.75 billion on drilling, completions, facilities, and water infrastructure in 2023. It is anticipated that the 2023 capital program would put 500–530 wells into production. In 2023, Pioneer projects an overall output of 670 to 700 MBOEPD and oil production of 357 to 372 MBOPD.
Appointments
1. Sunpower Corp (SPWR): $12
On May 1, 2023, SunPower Corporation announced that Jennifer Johnston will join the company as the Executive Vice President and Chief Operating Officer of the company, effective as of May 8, 2023.
| MarketCap: $2.10B | Avg. Daily Volume (30 days): 4,130,934 | Revenue (TTM): $1.74B |
| Net Income Margin (TTM): 3.22% | ROE (TTM): 22.17% | Net Debt: N/A |
| P/E: 20.41 | Forward P/E: 29.24 | EV/EBIDTA (TTM): 66.89 |
| P/S (TTM): 1.31 | P/B (TTM): 3.98 | 52 Week Range: $12.03 – $28.42 |
2. Academy Sports and Outdoors (ASO): $62.04
In connection with a planned succession process conducted by the Board of Directors of Academy Sports and Outdoors, on April 26, 2023, Steven P. Lawrence, Executive Vice President, Chief Merchandising Officer of the company, will succeed Mr. Hicks as the Chief Executive Officer of the company.
| MarketCap: $4.77B | Avg. Daily Volume (30 days): 1,502,879 | Revenue (TTM): $6.40B |
| Net Income Margin (TTM): 9.82% | ROE (TTM): 40.58% | Net Debt: $1.44B |
| P/E: 8.28 | Forward P/E: 8.33 | EV/EBIDTA (TTM): 6.51 |
| P/S (TTM): 0.86 | P/B (TTM): 3.12 | 52 Week Range: $24.94 – $69.02 |
3. 3M Co. (MMM): $102.83
The Board of Directors of 3M Company has appointed Michael G. Vale as the company’s Group President and Chief Business and Country Officer, a new role on the company’s Corporate Operations Committee effective April 25, 2023.
| MarketCap: $56.73B | Avg. Daily Volume (30 days): 3,157,043 | Revenue (TTM): $33.43B |
| Net Income Margin (TTM): 16.31% | ROE (TTM): 36.03% | Net Debt: $13B |
| P/E: 10.60 | Forward P/E: 12.17 | EV/EBIDTA (TTM): 10.20 |
| P/S (TTM): 1.76 | P/B (TTM): 3.75 | 52 Week Range: $100.16 – $147.85 |
4. Treehouse Foods (THS): $53.91
On April 24, 2023, Waste Connections announced that concurrent with Mr. Jackman’s departure, Ronald J. Mittelstaedt, the company’s Executive Chairman, succeeded Mr. Jackman as the company’s President and Chief Executive Officer.
| MarketCap: $3.02B | Avg. Daily Volume (30 days): 280,216 | Revenue (TTM): $3.45B |
| Net Income Margin (TTM): -4.24% | ROE (TTM): -0.91% | Net Debt: $1.59B |
| P/E: -185.90 | Forward P/E: 20.37 | EV/EBIDTA (TTM): 20.52 |
| P/S (TTM): 0.84 | P/B (TTM): 1.73 | 52 Week Range: $30.06 – $54.23 |
5. Syneos Health (SYNH): $39.451
On May 02, 2023, Syneos Health announced the appointment of Michael Bonello as Chief Financial Officer, effective July 1, 2023.
| MarketCap: $4.07B | Avg. Daily Volume (30 days): 1,236,875 | Revenue (TTM): $5.39B |
| Net Income Margin (TTM): 4.94% | ROE (TTM): 7.72% | Net Debt: $2.78B |
| P/E: 15.29 | Forward P/E: 11.82 | EV/EBIDTA (TTM): 9.70 |
| P/S (TTM): 0.77 | P/B (TTM): 1.19 | 52 Week Range: 22.89 – $79.77 |
1. Bristol-Myers Squibb Co. (BMY): $66.64
On April 26, 2023, Bristol Myers Squibb company announced that Giovanni Caforio, M.D., the company’s Chairman of the Board of Directors and Chief Executive Officer, has decided to retire as Chief Executive Officer effective November 1, 2023.
| MarketCap: $140.00B | Avg. Daily Volume (30 days): 7,244,116 | Revenue (TTM): $45.85B |
| Net Income Margin (TTM): 15.95% | ROE (TTM): 23.07% | Net Debt: $30.12B |
| P/E: 19.43 | Forward P/E: 8.26 | EV/EBIDTA (TTM): 8.67 |
| P/S (TTM): 3.11 | P/B (TTM): 4.41 | 52 Week Range: $64.41 – $80.14 |
2. Academy Sports and Outdoors (ASO): $62.04
In connection with a planned succession process conducted by the Board of Directors of Academy Sports and Outdoors, on April 26, 2023, Ken C. Hicks, President and Chief Executive Officer and Chairman notified the Board of his decision to transition out of his roles as President and Chief Executive Officer of the company, effective June 1, 2023.
| MarketCap: $4.77B | Avg. Daily Volume (30 days): 1,502,879 | Revenue (TTM): $6.40B |
| Net Income Margin (TTM): 9.82% | ROE (TTM): 40.58% | Net Debt: $1.44B |
| P/E: 8.28 | Forward P/E: 8.33 | EV/EBIDTA (TTM): 6.51 |
| P/S (TTM): 0.86 | P/B (TTM): 3.12 | 52 Week Range: $24.94 – $69.02 |
3. Goosehead Insurance (GSHD): $58.45
On April 26, 2023, Goosehead Insurance announced that P. Ryan Langston will step down from his position as Chief Legal Officer of the company on June 2, 2023, and assume the position of Special Advisor to the Board of Directors.
| MarketCap: $2.19B | Avg. Daily Volume (30 days): 217,938 | Revenue (TTM): $224.66M |
| Net Income Margin (TTM): 1.22% | ROE (TTM): -16.68% | Net Debt: $138.27M |
| P/E: N/A | Forward P/E: 67.57 | EV/EBIDTA (TTM): 63.47 |
| P/S (TTM): 5.73 | P/B (TTM): 78.22 | 52 Week Range: $29.23 – $71.04 |
4. New York Mortgage Trust (NYMT): $9.60
On April 26, 2023, New York Mortgage Trust announced that Nathan R. Reese, Chief Operating Officer and Secretary, notified the company that he was resigning as COO and Secretary to pursue other opportunities.
| MarketCap: $875.33M | Avg. Daily Volume (30 days): ,289 | Revenue (TTM): $-68.40M |
| Net Income Margin (TTM): N/A | ROE (TTM): -15.86% | Net Debt: $2.51B |
| P/E: -2.66 | Forward P/E: 8.57 | EV/EBIDTA (TTM): N/A |
| P/S (TTM): 97.51 | P/B (TTM): 0.76 | 52 Week Range: $7.66 – $12.43 |
5. Pioneer Natural Resources (PXD): $207.79
On April 21, 2023, Scott D. Sheffield, Chief Executive Officer of the company, informed the Board of Directors of the company that he intends to retire as CEO, effective end of day on December 31, 2023.
| MarketCap: $48.57B | Avg. Daily Volume (30 days): 2,500,000 | Revenue (TTM): $22.83B |
| Net Income Margin (TTM): 30.91% | ROE (TTM): 31.02% | Net Debt: $4.99B |
| P/E: 7.34 | Forward P/E: 9.29 | EV/EBIDTA (TTM): 4.61 |
| P/S (TTM): 2.32 | P/B (TTM): 2.28 | 52 Week Range: $177.27 – $267.20 |
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