Why Cabot Oil & Gas slows after 2Q earnings despite beats (Part 0 of 1)
Cabot compared to its peers
Cabot Oil & Gas’ (COG) closest competitors include Southwestern Energy (SWN), Range Resources (RRC), and EQT Corporation (EQT). EQT is the largest company in the group by market capitalization and enterprise value (or EV). Market cap for EQT is ~$15 billion and EV is $18 billion.
SWN, RRC, and COG have similar EV’s ranging between $15–$16 billion. However, among the three, SWN has the lowest EV to earnings before interest, taxes, depreciation, and amortization (or EBITDA) multiple of 6.8X. This reflects the fact that that SWN has had a higher EBITDA compared to COG or RRC.
Additionally, RRC’s EV to EBITDA multiple of 12.4x is higher than COG’s 9.5x. This means that RRC’s EBITDA was less than COG’s. It’s important to note that RRC’s EV is slightly higher than COG’s.
Better production at COG
COG’s higher EBITDA is likely because of the production levels it has achieved. COG has provided a production guidance range of 28%–41% increase in 2014—the highest among its peers. For context, RRC, SWN, and EQT have provided a guidance or guidance range of 20%–25%, 14%, and 24%, respectively.
Additionally, COG’ s net debt to EBITDA is significantly lower than that for RRC or EQT, implying better capital handling.
Strong Forward EBITDA estimates
Forward EV to EBITDA multiple for COG is lower compared to RRC and EQT. This is a positive, as lower multiple indicates expectations of strong EBITDA growth.
Margin’s and return ratios
Although the profit margin for COG, at 19%, is slightly less than SWN’s, at 20.5%, and EQT’s, at 23.2%, it has the highest return on equity (or ROE) at 16% and the highest dividend yield of 0.24%.
Key exchange-traded funds (or ETFs)
COG, SWN, RRC and EQT are all major components of the Energy Select Sector SPDR ETF (XLE).
- Utility Industry
- Oil, Gas, & Consumable Fuels
- EQT Corporation
- Southwestern Energy