More Trouble for Cabot Oil & Gas in 2020?

In 2019, Cabot Oil & Gas (COG) has fallen 22%, while the Energy Select Sector SPDR Fund (XLE) has risen 8%. The company operates with a production mix of 100% in natural gas. This year, Cabot Oil & Gas has a correlation of 34.6% and 7.6% with natural gas and crude oil prices, respectively. A 26.1% fall in natural gas prices this year could explain the downturn in the company. The sentiments around oil prices also impact energy stocks.

More trouble in 2020 for Cabot Oil & Gas?

The bullish sentiments for oil prices are rising after the OPEC+ production cut. However, the natural gas supply could rise if US shale oil producers increase oil supplies in anticipation of higher prices. Another rise in natural gas production would have a negative impact on prices.

In the third quarter, Cabot Oil & Gas’s adjusted EPS was at $0.29, which is 16% higher than its EPS in the third quarter of 2018. Based on the average closing prices, Henry Hub natural gas active futures fell 18.2% in the third quarter compared to the third quarter of 2018.

Cabot Oil & Gas’s realized natural gas price in the third quarter was $2.56 per Mcf—a gain of 22% on a year-over-year basis. Transportation facilities and rising demand near the production location could explain the divergence between realized and Henry Hub natural gas prices. Among natural gas–weighted stocks, Cabot Oil & Gas fell the least in 2019. Since Antero Resources has lost more than 50%, it’s the underperformer.

Despite higher realized natural gas prices, Cabot Oil & Gas could react to any weakness in natural gas. On average in 2019, natural gas–weighted stocks have fallen 45.6% compared to an 11.6% decline in oil-weighted stocks. Investors might be bearish on natural gas–weighted stocks after the steady rise in oil prices.

Cabot Oil & Gas’s forward earnings

Cabot Oil & Gas’s forward PE ratio is at 13.6x—the lowest among the natural gas–weighted stocks. In comparison to upstream stocks that are the constituents of the S&P 500 (SPY), including ConocoPhillips (COP), Occidental Petroleum (OXY), and a few others, Cabot Oil & Gas has the second-lowest forward PE ratio.

On December 11, Stifel reduced the target price on Cabot Oil & Gas by $1 to $16. Last month, Citigroup and Cowen reduced their target price on Cabot Oil & Gas by $4 and $1 to $22 and $21, respectively. Analysts’ mean target price suggests an upside of 23.4%.

Around 53% of the analysts surveyed by Reuters have a “buy” or a “strong-buy” recommendation on the stock. Approximately 39% recommend a “hold,” while the remaining analysts recommend a “strong-sell” or “sell.”

Target price and moving averages

On Tuesday, Cabot Oil & Gas’s implied volatility was at 27.6%. Based on the implied volatility, the stock could close between $16.82 and $18.1 until January 2. Read Oil Prices: Implied Volatility Suggests Upside Is Intact to learn more about this price model.

In 2019, Cabot Oil & Gas’s implied volatility averaged 31.1%. Antero Resources’ implied volatility averaged 67%. Other natural gas–weighted stocks’ implied volatility was higher than Cabot Oil & Gas. Lower implied volatility could indicate a relatively low risk in Cabot Oil & Gas.

On Tuesday, Cabot Oil & Gas closed on par with its 100-DMA. The company could decisively break below its 100-DMA if natural gas prices fall. Today, Refinitiv’s two different weather forecast models suggest a fall 1.7 HDD (heating degree days) and 4.1 HDD, respectively, from Tuesday’s reading. A bearish weather forecast might drag Cabot Oil & Gas below the 100-DMA. Since May 29, the company has been struggling to decisively break above the 100-DMA.

Cabot Oil & Gas was 6.4% and 0.6% above the 20-DMA and 50-DMA, respectively. The 20-DMA at $16.39 is a strong support zone for the stock. However, Cabot Oil & Gas was 17.4% below the 200-DMA at $21.11.