In the previous parts of this series, we compared Cimarex Energy’s (XEC) EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple against its historical levels. Now let’s hold the company’s valuation next to those of peers.
A peer group comparison shows that Cimarex’s forward EV-to-EBITDA multiple of ~14.7x is at a premium compared to its peers. Concho Resources (CXO) is currently trading at a forward EV-to-EBITDA multiple of ~11x. Continental Resources (CLR) is trading at a multiple of ~12x. Hess (HES) is trading at a lower multiple of ~9.4x.
Cimarex’s valuation premium can be credited to its healthy credit position and lower risk. Notably, the above companies make up ~9% of the iShares US Oil & Gas Exploration & Production ETF (IEO).
Returns and dividends
XEC offers the worst returns, however, when its profitability is scaled by its shareholder equity. This is called ROE (return on equity). Cimarex’s ROE stands at about -65%, which comes as a result of the company’s negative net earnings.
Among Cimarex’s peers, Continental Resources has the better ROE of -9%. In terms of more direct returns to shareholders, XEC offers a dividend yield of just ~0.5%. Among peers, Hess has the highest dividend yield at 1.7%.
Now let’s examine what’s been driving Cimarex’s stock performance.