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Cabot (COG) Q3 Earnings Beat, FCF Soars, Dividend Raised

Zacks Equity Research

Cabot Oil & Gas Corporation COG reported third-quarter 2019 net income per share — adjusted for special items — of 29 cents, surpassing the Zacks Consensus Estimate of 27 cents and the year-ago figure of 25 cents.

The strong results can be attributed to lower costs and slightly higher-than-anticipated production. Precisely, the company’s production came in at 220.7 billion cubic feet equivalent (Bcfe), just ahead of the Zacks Consensus Estimate of 219 Bcfe.

In more good news for investors, the natural gas explorer raised its quarterly dividend by 11% to 10 cents per share (or 30 cents per share annualized). Through the third quarter, Cabot bought back 10.5 million shares at a weighted average price of $18.21.

But the company’s quarterly revenues of $429.1 million missed the Zacks Consensus Estimate of $455 million as natural gas prices fell. Further, the reported figure was below the prior-year quarter’s revenues of $545.2 million.

Cabot Oil & Gas Corporation Price, Consensus and EPS Surprise

 

Cabot Oil & Gas Corporation Price, Consensus and EPS Surprise

Cabot Oil & Gas Corporation price-consensus-eps-surprise-chart | Cabot Oil & Gas Corporation Quote

Production, Prices, Costs & Drilling Statistics

In the quarter under review, Cabot’s overall production totaled 220.7 Bcfe – 100% natural gas – 18.3% higher than the prior-year quarter volume of 186.5 Bcfe. 

Average realized natural gas price (excluding hedges) fell to $1.89 per thousand cubic feet from the year-ago quarter’s $2.36. The Zacks Consensus Estimate called for a price of $1.81 per thousand cubic feet.

Total operating expenses were 23.2% lower than the third quarter of 2018, decreasing to $303.2 million. While transportation and gathering costs were up 12.5% year over year to $145.7 million, Cabot did not incur any operating expense in brokered natural gas activity for which it shelled out $93.4 million in the year-ago period.

Notably, total average unit costs declined to $1.43 per thousand cubic feet equivalent (Mcfe) from the year-ago figure of $1.69.

Cabot drilled 22 wells and completed 29 during the quarter.

Financial Position

Operating cash flows were $270.9 million (up 11.8% year over year), while capital expenditures totaled $199.2 million (down 23.5%). Free cash flow (FCF) — which is a key metric to gauge a company’s financial health — was $72.4 million during the third quarter, depicting an increase of 153.1% from a year earlier. As of Sep 30, 2019, the company had cash and cash equivalents of $82.3 million and total debt of $1.2 billion, with a debt-to-capitalization ratio of 35.5%.

Guidance

For the fourth quarter, Cabot provided its net production guidance in the range of 2,375-2,425 million cubic feet equivalent a day. Meanwhile, the company adjusted its full-year production growth guidance to 17%, the midpoint of the previous projection range of 16 to 18%. Finally, Cabot reaffirmed its full-year capital expenditure projection of $800-$820 million.

Cabot, which recently entered into an agreement with NextEra Energy Partner, LP NEP to sell all its 20% stake in Meade Pipeline Co LLC, has also maintained its preliminary guidance for 2020. It projects the production growth to be 5% next year, based on a capital expenditure range of $700-$725 million.

Zacks Rank & Stock Picks

Cabot Oil & Gas holds a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space could look at some better options like TC Energy TRP and Equinor ASA EQNR that sport a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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