Cimarex Energy (XEC) Update - Oct 6

[dan_s]

In the last 3 months, 9 ranked analysts set 12-month price targets for XEC. The average price target among the analysts is $123.14. Their valuations range from $100 to $170 per share.

Of the Sweet 16, Cimarex does seem to have higher than average exposure to the Permian Basin takeaway capacity issue, so my valuation is based on much lower realized oil prices than where WTI sits today. They should be getting very good oil prices in the Mid-Continent area (STACK) to offset the low prices in the Permian.

Proceeds from the Ward County sale to Callon Petroleum more than fills the funding gap between cash flow from operations (over $1.4 Billion) and their 2018 Capex program ($1.7 Billion).

Net of the production sold in Ward County, Cimarex should generate ~14% YOY production growth in 2018. Production growth in 2019 should be 15% to 18%.

I am lowering my valuation by $10 to $140/share, but I am still very high on this company. There is nothing that I can see to justify why the stock price is down 18.7% YTD. They are in much better shape today than they were a year ago. I don't think Wall Street gives them enough credit for what they have in STACK where they continue to report outstanding well results. In 2019 I expect them to accelerate their development program in the Top Tier area of the STACK play where oil is selling close to WTI prices.