Coterra Energy (CTRA) Update - Jan 17

[dan_s]

Coterra was formed by the merger of Cimarex into Cabot Oil & Gas. Because it closed on 10/1/2021 I won't have a fully quarter of actual results until they report Q4 results. That said, I have followed both companies for many years and they have provided detailed Q4 quidance. So, I am using an operating cash flow multiple to value the stock of 5X when 6X or 7X is more reasonable for a company of this size and quality.

I have updated my forecast/valuation model for CTRA and I have raised my valuation by $0.50 to $30.00. That may appear to be insignificant, but my confidence in this Sweet 16 company has risen.
> It has decades of HIGH QUALITY development drilling inventory.
> It should generate $4.5 to $5.5 Billion of operating cash flow in 2022. ($1.3 Billion in Q4 2021)
> They have announced plans to pay out 30% of operating CFPS as quarterly dividends (~$1.80/share in 2022).
> Annual production growth of 2% to 6% should be achievable with capex budgets of $1.2 to $1.5 Billion, so lots of FCF.
> The Balance Sheet is already in great shape, but some FCF will go to debt reduction.
> Look for a significant stock buyback in 2H 2022.
> I like the production mix of 75% natural gas, 13% crude oil and 12% NGLs. None of their NGLs are hedged.

CTRA is an investment that offers growth + high yield.