Cabot Oil & Gas: Ratings After Its Q2 Earnings


Jul. 30 2019, Updated 10:15 a.m. ET

On Monday, after Cabot Oil & Gas (COG) announced its second-quarter earnings, analysts cut the target price on the stock. TD Securities, Susquehanna, MKM Partners, and Jefferies reduced the target price on the stock by $2, $5, $1, and $1 to $27, $23, $25, and $26, respectively. However, MKM Partners upgraded its rating from “neutral” to “buy.” Since the second-quarter earnings results on July 26, the company’s share prices have fallen 12.2%.

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Cabot Oil & Gas’s mean target price

Analysts’ mean target for Cabot Oil & Gas was $25.5, which suggests a potential upside of 33.3% from the last closing price. Among the 31 analysts tracking the company, 54.8% recommended a “buy” or “strong buy,” while two recommended a “sell.” 

Key valuations

Among the natural gas–weighted stocks, Cabot Oil & Gas has a net debt-to-EBITDA ratio of 0.6x—the lowest among its peers. The ratio is below the peer average of 2.5x. The company’s consistent free cash flow generation could explain the lower ratio. Despite prolonged lower natural gas prices, the company has managed its financial stress better than its peers. Cabot Oil & Gas benefited from its premium pricing.

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Cabot Oil & Gas operates entirely in natural gas. The company has the highest return on equity among its peers. These factors might justify the forward EV-to-EBITDA multiple at 6.4x—the highest among the group. Since natural gas’s 17-year low in March 2016, the company has fallen 11.6%, compared to an average fall of 74.6% in the remaining natural gas–weighted stocks. Natural gas active futures rose 30.6% from that period.

Consistent dividend history

On Wednesday, the Fed will likely reduce key interest rates. Based on the CME FedWatch tool, there’s a 76.1% probability that the key interest rates will be reduced by 25 basis points. The rest of the probability suggests a reduction by 50 basis points in the interest rates. In both scenarios, investors prefer higher dividend yield stocks. Cabot Oil & Gas has the highest dividend yield of 1.9% among its peers.

The company might not match midstream or utility stocks’ dividend yield. However, the dividend yield might limit the downside in the stock prices for any concerns related to the interest rates. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has a dividend yield of 1.2%—the lowest among the energy sub-sector. The Alerian MLP Exchange Traded Fund (AMLP) has the highest dividend yield of 8% among the energy sub-sector. In the last 15 years, Cabot Oil & Gas has consistently paid dividends despite periods of rout in energy commodity prices.


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