On Feb 4, Zacks Investment Research upgraded Houston, Texas-based natural gas-focused energy explorer Cabot Oil & Gas Corp. (COG) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
With natural gas pushing through $5 per million Btu (MMBtu), brokerage analysts are upgrading their forecasts on exploration and production companies like Cabot, leading to positive estimate revisions.
Detailed Analysis
Natural gas prices have been on a tear lately, in the process rising to a four-year high. The single most important contributor to this upward pressure has been a bout of powerful winter snowstorm in the U.S. and Canada that called for the heating fuels’ higher consumption.
Taking advantage of this favorable environment, firms like Cabot have been able to drum up investor attention mainly because of their ability to boost production.
Cabot’s Marcellus program continues to ramp up with exceptional results. As of now, the company has nearly 200,000 acres under lease in the play, and it continues to expand. In the Eagle Ford Shale play, where Cabot has partnered with EOG Resources Inc. (EOG), the company controls 62,000 net acres and has a total of 43 producing wells. We believe the company’s Marcellus and Eagle Ford production will ensure 2014 volume growth beyond the currently-guided target of 30-50%.
Cabot Oil & Gas Corp.'s diversified asset portfolio is spread between low-risk/long reserve-life Appalachian assets and large-volume/rapid-payout Gulf Coast properties, with further variety from large prospect inventories in the Rocky Mountains and the Anadarko Basin that have a broad mix of production and payout profiles.
Based on the continued price pressure on natural gas, its above-average production growth, a relatively low risk profile and longer reserve lives, analysts are predicting strong earnings growth for Cabot in 2014. This year’s Zacks Consensus Estimate of $1.33 represents earnings per share growth of an impressive 105% over 2013.
Other Stocks to Consider
Some other stocks worth considering in the domestic upstream sector include Linn Co. LLC (LNCO) and Warren Resources Inc. (WRES). Both carry a Zacks Rank #1 (Strong Buy).
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