How Cabot Oil & Gas’s Valuation Is Trending
Cabot’s historical valuation
Cabot Oil & Gas (COG) traded at an average EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio of 20.1x between 2Q15 and 2Q17.
EV is the sum of a company’s market capitalization and net debt.
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In 2Q17, COG’s EV-to-EBITDA multiple was trading at 14.3x. That means it was trading at a discount compared to the average over the last two years. The multiple was also trading at a premium between 1Q16 and 4Q16. After that, it fell and started trading at a discount to the two-year average.
When COG’s EBITDA multiple was trading at a premium to the two-year average, it was a period of mostly stable EV levels but falling EBITDA levels. That could explain the mostly rising EV-to-EBITDA trend in that period. However, starting in 1Q17, COG’s EBITDA began rising. Its trailing 12-month adjusted EBITDA rose from $464.0 million in 4Q16 to $687.6 million in 1Q17 and then rose to $882.5 million in 2Q17. In 2Q16, COG’s trailing 12-month adjusted EBITDA was $424.0 million.
Between 2Q17 and 2Q16, COG’s EV was mostly unchanged. So the changes in the EV-to-EBITDA multiple were brought about by the changes in EBITDA.
As we saw above, COG’s higher EBITDA levels in 1Q17 and 2Q17 compared to the previous quarters caused its EBITDA multiple to fall in those periods.
Cabot’s forward EV to EBITDA
Cabot’s forward EV-to-EBITDA multiple, which uses market expectations for the company’s EBITDA for the current fiscal year, is ~10.0x. The lower forward multiple indicates that Wall Street expects COG’s EBITDA to rise this fiscal year compared to the last 12 months. It also indicates that COG could continue to trade at a discount compared to its two-year average.
In the next part, we’ll look more at COG’s forward EV-to-EBITDA multiple and draw comparisons with its peers.