Cimarex Energy (XEC) Update - Sept 14
Posted: Fri Sep 14, 2018 9:47 am
From the Tudor Pickering Holt "Morning Note". Their price target of $148 compares to my valuation of $150.
XEC Stock Thoughts
Looking for near-term oil execution to drive Permian re-rate thesis
Sector: Nam E&P | Ticker: XEC | Recommendation: BUY | Target: $148 | Close: $89.37
Near-term, we see Q3'18 production slightly ahead of expectations at 215mboepd (64mbpd oil) vs. Street 213 (63 oil) / guidance of 206-215 (61.5-64.5) and are watchful for results in the southern portion of the N. Delaware Basin to drive a meaningful shift in the corporate oil mix over time. A H2'18 heavy TIL schedule (~70% of FY'18) is expected to drive a strong exit rate (TPHe Q4'18 78mbpd oil vs. Street 76), while FY'18 capex is likely at the low-end of the $1.68-1.79B budget (TPHe $1.67B/Street $1.64B). However, Permian oil differentials and Waha (ngas price) weakness could be near-term headwinds and we'd be looking for execution on oil before seeing a greater shift in sentiment on the name behind our Permian re-rate thesis. Longer-term, valuation remains attractive at current levels (66% upside to NAV, 3.3x 2020 EV/EBITDA at strip) with the ability to generate a 5-year 13% CAGR and a 9% FCF yield, on average, in '21-'25 and inventory through ~2030 on our accelerated activity ramp.
TIL = Turn in Line (i.e. complete the well to sales)
XEC is very profitable and it is trading at less than 6X operating cash flow per share.
XEC Stock Thoughts
Looking for near-term oil execution to drive Permian re-rate thesis
Sector: Nam E&P | Ticker: XEC | Recommendation: BUY | Target: $148 | Close: $89.37
Near-term, we see Q3'18 production slightly ahead of expectations at 215mboepd (64mbpd oil) vs. Street 213 (63 oil) / guidance of 206-215 (61.5-64.5) and are watchful for results in the southern portion of the N. Delaware Basin to drive a meaningful shift in the corporate oil mix over time. A H2'18 heavy TIL schedule (~70% of FY'18) is expected to drive a strong exit rate (TPHe Q4'18 78mbpd oil vs. Street 76), while FY'18 capex is likely at the low-end of the $1.68-1.79B budget (TPHe $1.67B/Street $1.64B). However, Permian oil differentials and Waha (ngas price) weakness could be near-term headwinds and we'd be looking for execution on oil before seeing a greater shift in sentiment on the name behind our Permian re-rate thesis. Longer-term, valuation remains attractive at current levels (66% upside to NAV, 3.3x 2020 EV/EBITDA at strip) with the ability to generate a 5-year 13% CAGR and a 9% FCF yield, on average, in '21-'25 and inventory through ~2030 on our accelerated activity ramp.
TIL = Turn in Line (i.e. complete the well to sales)
XEC is very profitable and it is trading at less than 6X operating cash flow per share.