Coterra Energy (CTRA) Update - April 19

[dan_s]

Note from Wells Fargo Equity Research

CTRA remains one of our top picks in the U.S. E&P sector, as we see the company delivering on the three C's that we view as differentiators for E&P stocks in 2022—Capital Discipline, Cash Margins, and Cash Returns.
In our view, CTRA has one of the lowest cash flow breakevens among gassy producers (~$1.50/mcf) given the cash flow exposure to oil/liquids. We also see underappreciated capital effciency and capital flexibility for the company in 2H22 and beyond to boost cash flow generation under various commodity price scenarios.
The stock is trading at ~9.3%/6.2 post-dividend FCF/EV (post dividend) in 2023/24e, compared to gas peer average of ~8.9%/6.7%. We believe this discount is unmerited. We reiterate our Overweight rating and raise our NAV-based price target to $38/sh from $37/sh. Our updated 2022/2023e EPS estimates are$3.44/$2.23 vs. $3.35/$2.34 prior.

My current valuation of CTRA is $38.00 per share. At the time of this post it was trading at $30.42

I refer to Coterra as one of the "gassers" in our Sweet 16, but it does produce a lot of liquids.
Q1 production should be approximately 2,820,000 mcfpd of dry gas, 70,000 bpd of NGLs and 81,000 bpd of crude oil for total production of 621,000 Boepd.
None of their NGLs are hedged and I now think Q1 realized NGL prices may be $3 to $4 per bbl higher than my model's assumption of $33/bbl.
Coterra pays a fixed + variable quarterly dividend that should be going a lot higher.