Oppenheimer Initiates Coverage On Cimarex Energy

Oppenheimer initiated coverage on Cimarex Energy Co XEC Tuesday with a Perform rating.

Analyst Robert Du Boff commented, “Although the company has a good asset base in attractive, liquids-rich unconventional plays and a solid balance sheet with which to develop them, we think it will struggle to grow earnings and cash flow over the next few years based on the current oil & gas price strip.

“Although we forecast production growth in the mid- to high-teens over that span, our estimates are based on the current strip, which reflects crude prices of $65-$70/b WTI in both years. With a relative valuation in line with the broader E&P group, we think risk and reward are in balance at the current share price.”

Du Boff cautioned that “Cimarex has no hedges beyond 2014. Based on recent commodity futures, we would expect net realized pricing to fall 25 percent next year, and recover only 6 percent the following year. The lower price environment will likely reduce internally generated cash flow—the primary source for funding future growth.”

“XEC is currently trading at 24.3x P/E, 5.5x P/CF, and 6.1x EV/EBITDA, based on 2015 consensus, a premium to the Oppenheimer E&P universe. We believe the company needs higher commodity prices to remain in line with its five-year average multiples,” according to Du Boff.

Cimarex Energy Co recently traded at $101.91, up 4.23 percent.