Cimarex Energy (XEC) is TPH "Top Pick" - Jan 12

[dan_s]

Tudor Pickering Holt: XEC Stock Thoughts
Remains top pick on oil exposure; optionality for material appreciation given gas leverage
Sector: NAm E&P | Ticker: XEC | Recommendation: BUY | Target: $42 | Close: $45.01 < My valuation is now $52 for XEC.
The equity remains one of our top picks on oil exposure alone given its highly capital efficient development, a pristine balance sheet, and line of sight to accelerating shareholder returns but will also be a beneficiary of stronger gas and NGL prices given hydrocarbon commodity mix. We think leverage to Waha and improving Midcon basis as pipeline capacity comes online should continue to tighten basis towards HH and see ~$20MM of cashflow sensitivity for every 10c change in gas in our model. Additionally, we expect significant debt reduction (~$750MM) through use of FCF / cash by YE’21 which should lead to a strategy thereafter that returns a material amount of cash via a variable dividend or buyback (TPHe last piece of the puzzle shareholders are looking for) to boost returns above the common dividend yield of ~2%. Looking at 2022 metrics in a $55/bbl WTI and $3.25/mcf HH environment, we see ~$1B of FCF while growing oil volumes mid-single digits exit-to-exit for a 22% FCF-to-EV and a cheap 2.6x EV/EBITDA with essentially no net debt on the balance sheet, some of the best metrics within our coverage. For 2021, we model oil production at 76.5mbopd (Street 76.6) on $606MM (Street $647MM) of capex. < This is more 2021 oil production than what I'm using in my model (70,750 BOPD).

Since April 10, 2020 XEC has gone from $18 to $45.