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Shares of Cabot Oil & Gas Corporation (NYSE:COG) are down around 30% since the middle of April and now reflects a potential 20% intrinsic equity value upside potential, according to MKM.
The Analyst
MKM Partners's John Gerdes upgraded Cabot Oil's stock from Neutral to Buy with a price target lowered from $26 to $25.
The Thesis
Cabot earns the title of operating the lowest capital intensity business among the North American E&P space with a full-cycle return of 210% versus the gas industry median full-cycle return of 100%-105%, Gerdes wrote in the note. The company should be able to show an 8% production compounded annual growth rate through 2021 with capital spending 40%-45% less than cash generation.
By comparison, peers operating in the Marcellus region are expected to show a 4% CAGR production rate while with growth spending at 5-10% beyond cash generation.
Assuming a reasonable 12.5% equity discount rate, the research firm's net present value model implies a 30% upside potential to $25 per share. This is based in part on 2019 production growth of 18%, which is consistent with management's own 16%-18% range and a 2020 growth outlook of 5%. These growth rates are within the company's capital intensity measurement error and reflects expectations of using a three-rig drilling program in 2020.
Price Action
Shares of Cabot Oil & Gas were trading flat at $19.16 Monday afternoon.
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Benzinga's Top Upgrades, Downgrades For July 29, 2019
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.
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