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Here's Why Cabot Oil & Gas (COG) is Worth Betting on Now

Zacks Equity Research

Cabot Oil & Gas Corporation COG has witnessed upward estimate revisions for its 2020 earnings in the past 30 days. In fact, five out of seven analysts have revised their estimates upward. Also, despite the coronavirus-induced unfavourable business environment, this leading upstream energy player’s stock price has increased 7% year to date.

The company, carrying Zacks Rank #1 (Strong Buy), has a strong footing in the prolific Marcellus shale play. In the gas-rich resource, the upstream firm is planning to drill and place on production net of 60 to 70 wells through 2020. This is likely to aid long-term production growth. In fact, growing production has helped the company report better-than-expected earnings in first-quarter 2020.

Importantly, the natural gas producer believes that its strong operations and production growth story will back to generate positive free cashflows in 2020, sufficient to fund the dividend payments entirely. The company also has strong cost-control initiatives. Cabot Oil & Gas’s operating expenses of $1.46 per thousand cubic feet equivalent (Mcfe) in the March quarter of 2020 was lower than a year ago quarter’s $1.48. Importantly, the company is planning to spend roughly $575 million capital in 2020, lower than $788.4 million in 2019. In spite of the cut in spending, production in 2020 is expected to be in the band of 2,350 to 2,375 million cubic feet equivalent per day (MMcfe/D). The upper limit of the range is higher than year-ago period’s 2,371 MMcfe/D, reflecting improving capital efficiency.

Most importantly, since all of Cabot Oil & Gas’ production comprises natural gas, the company is well poised to capitalize on long-term clean energy demand.

Moreover, the upstream firm’s balance sheet has significantly less debt exposure as compared to the composite stocks in the industry. Notably, the company’s net debt to capitalization ratio of 0.32, is lower than the industry’s 0.38. Also, in the past few years, the ratio has mostly been lower than the industry.  Investors should also know that Cabot Oil & Gas has roughly $1.7 billion of liquidity, which can pay off net long-term debt of $1.1 billion, suggesting the company’s strong capacity to repay debt despite adverse business scenario due to the coronavirus pandemic.

Other Stocks to Consider

Other prospective stocks in the energy sector are Murphy USA Inc MUSA, Key Energy Services, Inc. KEGX and CNX Resources Corporation CNX. While Murphy and Key Energy sport a Zacks Rank #1 (Strong Buy), CNX Resources carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA is likely to see earnings growth of 7% in the next five years.

Key Energy is expected to witness bottom-line growth of 97.2% in 2020.

CNX Resources has witnessed upward estimate revisions for 2020 bottom line in the past 60 days.

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