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Oil & Gas Stocks

Cabot Oil & Gas Corp Valuation – December 2015 Update $COG

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cabot Oil & Gas Corp (COG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cabot Oil & Gas Corporation is an independent oil and gas company engaged in the development, exploitation and exploration of oil and gas properties. The Company’s exploration, development and production operations are primarily concentrated in two plays: the Marcellus Shale in northeast Pennsylvania and the Eagle Ford Shale in south Texas. The Company’s Marcellus Shale properties are principally located in Susquehanna County and to a lesser extent Wyoming County, Pennsylvania. The Company’s properties in the Eagle Ford Shale are principally located in Atascosa, Frio and La Salle Counties, Texas. The Company also has operations in various other unconventional and conventional plays throughout the continental United States, including the Utica Shale in Pennsylvania; the Cotton Valley, Haynesville, Bossier, and James Lime formations in east Texas, and the Devonian Shale, Big Lime, Weir and Berea in West Virginia.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of COG – December 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,193,063,900 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.81 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -55.16% Fail
6. Moderate PEmg Ratio PEmg < 20 80.74 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.45 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.81 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -40.21 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

COG value Chart December 2015

EPSmg $0.22
MG Growth Estimate -3.97%
MG Value $0.12
Opinion Overvalued
MG Value based on 3% Growth $3.18
MG Value based on 0% Growth $1.86
Market Implied Growth Rate 36.12%
Current Price $17.71
% of Intrinsic Value 14525.93%

Cabot Oil & Gas Corp does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned by the low current ratio, the insufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor has concerns with the level of debt in relation to the current assets as well as the insufficient earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $0.30 in 2011 to an estimated $0.22 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 36.12% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cabot Oil & Gas Corp (COG)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

COG Charts December 2015

Net Current Asset Value (NCAV) -$7.61
Graham Number #NUM!
PEmg 80.74
Current Ratio 0.81
PB Ratio 3.45
Dividend Yield 0.45%
Number of Consecutive Years of Dividend Growth 4

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $215,421,000
Total Current Liabilities $265,585,000
Long-Term Debt $2,017,000,000
Total Assets $5,484,672,000
Intangible Assets $0
Total Liabilities $3,362,935,000
Shares Outstanding (Diluted Average) 413,846,000

Earnings Per Share History

Next Fiscal Year Estimate -$0.12
Dec14 $0.25
Dec13 $0.66
Dec12 $0.31
Dec11 $0.29
Dec10 $0.12
Dec09 $0.36
Dec08 $0.52
Dec07 $0.43
Dec06 $0.81
Dec05 $0.37
Dec04 $0.22
Dec03 $0.05
Dec02 $0.04
Dec01 $0.13
Dec00 $0.09
Dec99 $0.02
Dec98 $0.01
Dec97 $0.08
Dec96 $0.06
Dec95 -$0.34

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.22
Dec14 $0.37
Dec13 $0.40
Dec12 $0.29
Dec11 $0.30
Dec10 $0.35
Dec09 $0.48
Dec08 $0.52
Dec07 $0.47
Dec06 $0.43
Dec05 $0.21
Dec04 $0.12
Dec03 $0.07
Dec02 $0.07
Dec01 $0.08
Dec00 $0.05
Dec99 $0.01

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – December 2014
32 Companies in the Spotlight This Week – 12/6/14
Cabot Oil & Gas Corporation Annual Valuation – 2014 $COG

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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