Cimarex Energy (XEC) Price Target Raised - April 12

[dan_s]

Stifel rates XEC a BUY and they have raised their price target to $120/share. Here are highlights from their report. Cimarex is one of the most well respected upstream companies. Their management and technical teams are first class. It has a very strong balance sheet, which is why it deserves to trade at a high multiple. My current valuation is $102.20/share, but I'm expecting to raise that after I see their Q2 results. - Dan

Preservation Mode: XEC management remains in preservation mode, aiming to
protect the company's strong balance sheet, asset depth, and organizational
capacity while prices remain depressed. The company remains on pace to have 4
rigs running by June (down from 12 at YE16). After experiencing the head-fake in
oil prices during 2015, management seems intent on seeing strong evidence of
improving macro fundamentals before ramping spending above cash flow. XEC
can hold its core Delaware Basin acreage by running 2 rigs (excluding 10%-15% of
its 230,000 net Wolfcamp acreage, which management believes to be non-core).

Meramec Update (STACK): XEC is currently monitoring DVN's pilot (testing 5 wells/section,
all in the Upper Meramec) and plans to complete its operated Meramec pilot
(testing 19 wells/DSU, 10 wells per section in the Meramec and 9 wells in the
Woodford) (Exhibit 1) during 4Q16. We expect initial results of XEC's first
Meramec pilot to be released in early 2017. Due to management still seeing
considerable variability across its vast Meramec acreage position (Exhibit 2), and
the reservoir being difficult to identify on logs (leaving the company to more heavily
rely on empirical data), XEC remains hesitant to add a flood of activity at current
prices. However, management believes positive results from the current pilots
combined with success from experimentation with stimulation styles and landing
zones could provide greater consistency across the play. XEC believes Meramec
completion designs remain in the early innings.

Woodford Eastern Core Infill Completion Schedule Moved Up: XEC is now
planning to begin completion of its Woodford eastern core infill wells in early 4Q16
(XEC operates western two sections, DVN operates eastern four sections).
Previously, these completions were expected to begin closer to YE16.

Service Costs Continue Descent: In February, management believed costs had
likely found a bottom. However, XEC's most recent completion bids saw an
incremental 10% reduction from 1Q16 levels. We believe lower service costs
coupled with higher commodity prices could motivate management to add an
incremental completion crew in the Delaware during 2H16 (not currently in budget).

Reiterate Buy: XEC has a successful track record of pragmatically delineating and
developing its assets, while also creating incremental value through idea
generation and execution stemming from its strong technical team. We continue to
like the company's top-tier assets, balance sheet, and operational leverage.