Cabot Oil & Gas’s Q2: What Disappointed Investors?


Jul. 26 2019, Updated 1:39 p.m. ET

Today, Cabot Oil & Gas (COG) announced its Q2 results. As of 9:53 AM ET, its stock had fallen 8.4%. Sequentially, the company’s adjusted EPS more than halved to $0.36, but beat analysts’ estimate by $0.02. Lower natural gas prices could be behind the fall in earnings. Its total production was at the higher end of its guidance. Cabot’s production mix is entirely natural gas.

Its EPS more than doubled YoY (year-over-year). A 24% rise in production may have mitigated the lower commodity prices. The company has also reduced its operating expenses by 24% per thousand cubic feet equivalent of production.

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Cabot Oil & Gas lowered its 2019 production growth estimate to 16%–18% from 20%. Moreover, its capital budget is expected to rise by up to $20 million. These factors may be why COG stock fell after the company posted strong Q2 results.

In 2020, Cabot Oil & Gas expects its production growth to moderate to 5% and its total capital budget to fall by $107.5 million YoY. Based on this year’s Henry Hub natural gas prices of $2.50 per million British thermal units, Cabot expects free cash flow of $375 million–$400 million. If natural gas prices rise by another $0.25, its overall free cash flow could increase by $150 million. The company plans to maximize shareholder value by reducing capital and generating more cash flow.

Analysts’ views on Cabot Oil & Gas

This month, Citigroup reduced its target price for COG by $1 to $28. Jefferies, JPMorgan Chase, and Goldman Sachs also reduced their target prices, by $4, $3, and $1.50, respectively, to $27, $26, and $27.50. Natural gas prices’ bearish outlook could be behind the target price reductions.

Analysts’ mean target of $26.80 for COG implies a 23% upside from its last closing price. Of the 21 analysts tracking COG, 52% recommend either “buy” or “strong buy,” and only two analysts recommend “sell.” This year, COG stock has fallen just 2.5%, whereas natural gas prices have plunged 23.7% and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has fallen 7.7%.


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