Cimarex Energy Co. XEC appears to be a solid bet for energy investors now, based on strong fundamentals and compelling business prospects. This Denver, CO-based company is an independent oil & gas exploration, and production firm. The company’s operations are located mainly in Oklahoma, Kansas, Texas and New Mexico. Its exploration and production activities take place primarily in two areas: the Permian Basin and the Mid-Continent region.
The company’s shares have popped 74.8% in the year-to-date period compared with 65.1% rally of the industry it belongs to.
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Cimarex Energy, which currently carries a Zacks Rank #2 (Buy) and has a VGM Score of B, offers significant investment opportunities to investors. Here V stands for Value, G for Growth and M for Momentum. The company’s score is a weighted combination of these three scores. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold), make solid investment choices.
Let's see what makes the stock an attractive upstream investment option at the moment.
Cimarex Energy’s strong acreage position in the prolific Permian Basin and presence in Mid-Continent resources are major positives. Last year, the oil-rich Permian Basin contributed 69% to the company’s total volumes of 252.5 thousand barrels of oil equivalent per day (MBoe/d). The merger plan with Cabot Oil & Gas Corporation COG, which was thumbed down by investors at first, is slowly gaining interest. The combined entity is expected to become one of the biggest U.S. shale players, with an increased footprint in major production sites. The deal will save approximately $100 million worth of annual costs.
The company expects 2021 free cash flow to be $700 million after dividend payments, at WTI crude price of $35 per barrel, indicating a significant increase from $279 million in 2020. At the $55 per barrel level, the potential increase in free cash flow will be used for further debt reduction. Cimarex Energy’scommitment to enhance shareholders’ value gives investors a reason to cheer. It is to be noted that the company increased the quarterly dividend by 22.7% from the year-ago period to 27 cents.
The upstream company displays a healthy balance sheet with low leverage. As of Jun 30, 2021, it had cash and cash equivalents of $799.3 million, up from the first-quarter level of $523.8 million. Net long-term debt was almost $2 billion, but no debt maturities till 2024. This can provide the company with financial flexibility.
Cimarex Energyreaffirmed its 2021 capital spending in the band of $650-$750 million. The oil and gas player expects capital budget to drive year-over-year growth in oil production volume in the December quarter of more than 30%. It intends to bring about 76-78 net wells online this year. Coupled with high crude prices, the increased output will likely boost its bottom line.
Earnings estimate revisions have the greatest impact on stock prices. Over the past two months, the stock has witnessed 20 upward revisions and no downward movement. The Zacks Consensus Estimate for Cimarex Energy’s earnings for the current year is pegged at $8.88 per share, indicating a massive rise from the year-ago period’s $1.39.
The company outpaced the Zacks Consensus Estimate in the trailing four quarters. It delivered a four-quarter average earnings surprise of 45.1%.
Other Stocks to Consider
Other top-ranked stocks from the energy space include SM Energy Company SM and Comstock Resources, Inc. CRK, each having a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SM Energy’s bottom line for 2021 is expected to surge 173.9% year over year.
The consensus estimate for Comstock Resources’ earnings for 2021 is pegged at $1.10 per share, signaling a major improvement from the year-ago figure of 23 cents.
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