Energy Prospectus

Cimarex Energy is going to merge into Cabot Oil & Gas (COG) at the end of September. The combined company ("NewCo") will be renamed when the merger closes. XEC shareholders will get 4.0146 shares of COG for each share of XEC they hold.

I have updated my forecast/valuation model for COG, raising the natural gas and NGL prices used for 2H 2021 and 2022. My valuation of COG increases to $29.00 per share, which means that my current valuation of XEC is $29 X 4.0146 = $116 (rounded down slightly).

At the time of this post, COG is trading for $19.35.

TipRanks: "In the last 3 months, 4 ranked analysts set 12-month price targets for COG. The average price target among the analysts is $23.50." < All four of the recent updates are dated before September, so they don't include the recent spike in natural gas and NGL prices.

Post closing, NewCo's production mix will be approximate 74% natural gas, 12% NGLs and 14% crude oil. Production should be over 700,000 Boepd in 2022.

NewCo will be the 5th "gasser" in the Sweet 16 joining AR, CRK, EQT and RRC as companies that get the majority of their revenues from the sale of natural gas and NGLs.

NewCo will also be one of the largest companies in the Sweet 16 with revenues of $6.5 to $7.0 Billion in 2022. It will generate lots of free cash flow and pay big dividends. Post merger guidance should be very impressive.

Because of its size and large amount of unhedged ngas and NGLs, this company should get a lot of attention from the Wall Street Gang. < Mergers of this size are difficult for most analysts to figure out. Therefore, they wait until the deal closes and the NewCo does a lot of the work for them by providing detailed guidance. You pay me the "Big Bucks" to give you a head start.

Zacks Equity Research
Mon, September 20, 2021, 7:57 AM

One stock that might be an intriguing choice for investors right now is Cabot Oil & Gas Corporation COG. This is because this security in the Oil and Gas – Exploration and Production – United States space is seeing solid earnings estimate revision activity, and is in great company from a Zacks Industry Rank perspective.

This is important because, often times, a rising tide will lift all boats in an industry, as there can be broad trends taking place in a segment that are boosting securities across the board. This is arguably taking place in the Oil and Gas – Exploration and Production – United States space as it currently has a Zacks Industry Rank of 38 out of more than 250 industries, suggesting it is well-positioned from this perspective, especially when compared to other segments out there.

Meanwhile, Cabot Oil is actually looking pretty good on its own too. The firm has seen solid earnings estimate revision activity over the past month, suggesting analysts are becoming a bit more bullish on the firm’s prospects in both the short and long term.

In fact, over the past month, current quarter estimates have risen from 47 cents per share to 50 cents per share, while current year estimates have risen from $1.72 per share to $1.79 per share. This has helped COG to earn a Zacks Rank #1 (Strong Buy), further underscoring the company’s solid position.

So, if you are looking for a decent pick in a strong industry, consider Cabot Oil. Not only is its industry currently in the top third, but it is seeing solid estimate revisions as of late, suggesting it could be a very interesting choice for investors seeking a name in this great industry segment.