Cimarex Energy Forecast
Posted: Wed Feb 15, 2017 7:12 pm
I have updated my forecast/valuation model for XEC and it will be posted to the EPG website later this evening.
I sure hope you guys and gals are at least looking at the forecast models before you invest in these companies. I know at first glance they just look like a lot of numbers, but part of my "mission" is to get you to understand (at least at a basic level) the accounting rules for oil & gas companies and know the difference between "earnings" and "cash flow from operations".
Cimarex is a great example of how distortive GAAP accounting rules can be for upstream companies, especially during periods of volatile commodity prices.
In 2016, Cimarex reported "earnings" as a LOSS of $431.0 million, yet the stock price moved up more than 70%. Investors that aren't as smart as the average EPG members, says "How the hell can that happen???". Because it generated cash flow from operations of $629.1 million and it has some extremely valuable leasehold. Without getting into the details, just remember that during periods of big swings in commodity prices, GAAP accounting rules are very distortive and wise investors know that "cash pays the bills".
On all of the forecast/valuation models on our website the row that says "Cash flow per share" is the most important. It is cash flow + access to the capital markets that funds growth.
VERY IMPORTANT: Cimarex s/b able to fund all of their 2017 capex program with cash flow from operations. This company has a SUPER STRONG balance sheet and LOTS OF RUNNING ROOM on Tier One leasehold. That is why it is one of our "Elite Eight".
My valuation of XEC is now $172/share, compared to First Call's price target of $157.41.
A few years ago I broke out the "Elite Eight" because I know some of you have a lower risk tolerance than other EPG members. The Elite Eight are highlighted on the Sweet 16 spreadsheet that I update each weekend. If you cannot tolerate a double digit loss you (a) should consider not investing in stock at all or (b) just stick to large-caps that have super strong balance sheets. XEC is one of those companies. NEVER INVEST A HIGH PERCENTAGE OF OUR NEST EGG IN ONE STOCK, NO MATTER HOW SAFE IT SEEMS. Small-caps have more upside, but they have a lot more risk than large-caps.
I sure hope you guys and gals are at least looking at the forecast models before you invest in these companies. I know at first glance they just look like a lot of numbers, but part of my "mission" is to get you to understand (at least at a basic level) the accounting rules for oil & gas companies and know the difference between "earnings" and "cash flow from operations".
Cimarex is a great example of how distortive GAAP accounting rules can be for upstream companies, especially during periods of volatile commodity prices.
In 2016, Cimarex reported "earnings" as a LOSS of $431.0 million, yet the stock price moved up more than 70%. Investors that aren't as smart as the average EPG members, says "How the hell can that happen???". Because it generated cash flow from operations of $629.1 million and it has some extremely valuable leasehold. Without getting into the details, just remember that during periods of big swings in commodity prices, GAAP accounting rules are very distortive and wise investors know that "cash pays the bills".
On all of the forecast/valuation models on our website the row that says "Cash flow per share" is the most important. It is cash flow + access to the capital markets that funds growth.
VERY IMPORTANT: Cimarex s/b able to fund all of their 2017 capex program with cash flow from operations. This company has a SUPER STRONG balance sheet and LOTS OF RUNNING ROOM on Tier One leasehold. That is why it is one of our "Elite Eight".
My valuation of XEC is now $172/share, compared to First Call's price target of $157.41.
A few years ago I broke out the "Elite Eight" because I know some of you have a lower risk tolerance than other EPG members. The Elite Eight are highlighted on the Sweet 16 spreadsheet that I update each weekend. If you cannot tolerate a double digit loss you (a) should consider not investing in stock at all or (b) just stick to large-caps that have super strong balance sheets. XEC is one of those companies. NEVER INVEST A HIGH PERCENTAGE OF OUR NEST EGG IN ONE STOCK, NO MATTER HOW SAFE IT SEEMS. Small-caps have more upside, but they have a lot more risk than large-caps.