Imperial Capital Downgrades Cimarex Energy, Points To Near-Term Weakness In Natural Gas Prices

Cimarex Energy Co XEC is facing headwinds from weakness in U.S. natural gas and natural gas liquid prices, according to Imperial Capital.

The Analyst

Irene Haas downgraded Cimarex Energy from Outperform to In-Line and lowered the price target from $82 to $58.

The Thesis

For the year ended March 31, 2019, Cimarex Energy recorded revenues, adjusted EBITDA and cash flow per share of $2.3 billion, $1.5 billion and $16, respectively, Haas said in the Tuesday downgrade note. (See her track record here.) 

Despite being a well-managed company with a strong balance sheet and ample liquidity, Cimarex Energy’s near-term earnings are expected to be adversely impacted by deteriorating natural gas and NGL prices in the U.S., the analyst said. 

The company is highly leveraged to gas and NGL, with gas accounting for 42% of its total estimated oil and gas production of 269,976boepd in 2019, with NGL comprising 27%, she said. 

The Gulf Coast Express Pipeline is scheduled to come online in October, and this may provide some relief, Haas said.

Prices in the Gulf Coast area are expected to come under pressure when incremental Permian and Appalachian gas enters the market, the analyst said.

U.S. natural gas prices are expected to remain volatile until the end of 2019, according to Imperial Capital. 

Price Action

Cimarex Energy shares were down 2.71% at $51.95 at the time of publication Tuesday. 

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