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A Look into COG’s Key Valuations

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Higher multiples but less leveraged

Currently, Cabot Oil & Gas (COG) is trading at a one-year forward PE ratio of 13.3x compared to the average of 11.4x for natural gas–weighted stocks. The S&P 500 Index (SPY) is trading at a one-year forward PE multiple of 16.2x.

In terms of its forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple, COG is trading 72% higher than the natural gas–weighted peer average.

Although COG is trading at a higher forward PE and EV-to-EBITDA multiple than its peers, its net debt-to-EBITDA ratio is 0.7x compared to the average of 2.5x for its peers. COG’s debt-to-equity ratio is 0.53x. Its higher pricing realization and relatively less-leveraged position could be behind its higher PE and EV-to-EBITDA multiples.

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Dividend yield

COG’s dividend yield is 1.4%, the highest among its peers. Moreover, COG has regularly paid dividends to its shareholders in the last 19 years. In the first quarter of 2019, COG’s free cash flow grew 27.7% on a sequential basis to $308.4 million.

COG expects its free cash flow for 2019 to remain between $500 million and $550 million at NYMEX natural gas prices of $2.50 per thousand cubic feet. Moreover, if natural gas prices average $3 per thousand cubic feet in 2019, its free cash flow could be between $700 million and $750 million. On May 24, Henry Hub natural gas active futures closed at $2.53 per thousand cubic feet.

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