Cimarex Energy (XEC) Update - April 25
Posted: Thu Apr 25, 2019 11:39 am
From TPH:
Cimarex Stock Thoughts
Post Q1, things are looking up
Sector: NAm E&P | Ticker: XEC | Recommendation: BUY | Target: $113 | Close: $70.86
We maintain a muted outlook on Q1 results as declining Resolute volumes and limited operated results place our oil production at 77.0mbopd vs. consensus of 79.4 and the wide guidance of 75-81mbopd. On capex, spending may still be elevated given fixed cost, e.g. capitalized G&A, and a high rig count still persists (dropping over the next few quarters) placing TPH at $377MM vs. Street $359MM for the quarter. However, all of this is temporary in our view as a heavy Q2 TIL schedule puts our oil production at 88.5mbopd vs. consensus of 86.5 and full year of 87.6mbopd vs. 86.4 on capital of $1.44B which is inline with guidance. Waha to be topical on the call and Cimarex will definitely be hit by weak realizations, although the financial impact is likely to be fairly moderate and we expect industry to start to commit to pipe to fix takeaway constraints. Finally, while the name remains a top pick in the space given our fundamental outlook on the business, we continue to believe XEC holds some of the highest optionality to be a takeout target given potential strategic fit for both CVX (depending on APC outcome) and BP (checkerboard acreage in the Delaware). Valuation remains attractive especially given leverage to improving realizations in 2020 with EV/EBITDA of 3.9x, P/E of 7.5x, ROCE of 17% and FCF yield of 7%.
Cimarex Stock Thoughts
Post Q1, things are looking up
Sector: NAm E&P | Ticker: XEC | Recommendation: BUY | Target: $113 | Close: $70.86
We maintain a muted outlook on Q1 results as declining Resolute volumes and limited operated results place our oil production at 77.0mbopd vs. consensus of 79.4 and the wide guidance of 75-81mbopd. On capex, spending may still be elevated given fixed cost, e.g. capitalized G&A, and a high rig count still persists (dropping over the next few quarters) placing TPH at $377MM vs. Street $359MM for the quarter. However, all of this is temporary in our view as a heavy Q2 TIL schedule puts our oil production at 88.5mbopd vs. consensus of 86.5 and full year of 87.6mbopd vs. 86.4 on capital of $1.44B which is inline with guidance. Waha to be topical on the call and Cimarex will definitely be hit by weak realizations, although the financial impact is likely to be fairly moderate and we expect industry to start to commit to pipe to fix takeaway constraints. Finally, while the name remains a top pick in the space given our fundamental outlook on the business, we continue to believe XEC holds some of the highest optionality to be a takeout target given potential strategic fit for both CVX (depending on APC outcome) and BP (checkerboard acreage in the Delaware). Valuation remains attractive especially given leverage to improving realizations in 2020 with EV/EBITDA of 3.9x, P/E of 7.5x, ROCE of 17% and FCF yield of 7%.