Cimarex Energy (XEC) Update - April 10

[dan_s]

From TPH Morning Notes:
"TIL" = Turn In Line, which means completing a well to a sales pipeline.

XEC Stock Thoughts
See Q1 as mixed, but long-term proposition remains intact
Sector: NAm E&P | Ticker: XEC | Recommendation: BUY | Target: $113 | Close: $66.82
Updating our model heading into earnings, we see Q1 production ~in-line with guidance, but a touch below Consensus on both overall (TPHe 248mboepd vs. Street 252mboepd vs. guidance 245-257) and oil (TPHe 77.0mbpd vs. Street 79.7mbpd vs. guidance 75-81mbpd) volumes. Our Q1 capex is above consensus (TPHe $401MM vs. Street $343MM) despite the low Q1 TIL count (7% of FY total), driven by a higher rig count entering the year (11 rigs in Feb'19, 9 rigs today, TPHe 7 rigs by mid-2019). Additionally, Waha pricing headwinds likely to persist over the next couple of quarters, but expect for oil economics to continue to drive corporate activity. Our outlook for 2019 remains intact at 270mboepd / 87.6mbopd on $1.44B of capex for ~$150MM post-dividend FCF vs. the Street's 266mboepd / 86.7mbopd on $1.44B of capex. The long-term proposition remains attractive to us with +69% upside to our $113/shr PT at $54/bbl WTI and $2.78/mcf HHUB 2021+ LT, a 3.7x EV/EBITDA, a 17% ROCE, an 8% FCF yield, and a ~7x P/E ratio in 2020 for the equity.

Note that TPH (and all of the other analysts that I follow) are using much lower oil prices than we have today to value these upstream companies.