Cabot Oil & Gas Corporation Annual Valuation – 2014 $COG

220px-Cabot_Oil_LogoBenjamin 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 5 Most Undervalued Companies for the Enterprising Investor – November 2014.  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 specific look at how Cabot Oil & Gas Corporation (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 three plays: the Marcellus Shale in Pennsylvania, the Eagle Ford in south Texas and the Marmaton oil play in Oklahoma. The Company also has non-core operations in various other unconventional and conventional plays throughout the continental United States. The Company’s assets are concentrated in areas with hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs. In December 2012, the Company sold certain proved oil and gas properties located in south Texas. In June 2012, the Company sold a 35% non-operated working interest associated with certain of its Pearsall Shale undeveloped leaseholds in south Texas.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 1/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $33.20
MG Value $17.41
MG Opinion Overvalued
Value Based on 3% Growth $8.62
Value Based on 0% Growth $5.05
Market Implied Growth Rate 23.66%
Net Current Asset Value (NCAV) -$6.82
PEmg 55.83
Current Ratio 1.36
PB Ratio 5.87

Balance Sheet – September 2014

Current Assets $588,000,000
Current Liabilities $433,000,000
Total Debt $1,612,000,000
Total Assets $5,807,000,000
Intangible Assets $0
Total Liabilities $3,441,000,000
Outstanding Shares 418,100,000

Earnings Per Share

2014 (estimate) $0.93
2013 $0.66
2012 $0.31
2011 $0.29
2010 $0.12
2009 $0.36
2008 $0.52
2007 $0.43
2006 $0.81
2005 $0.37
2004 $0.22

Earnings Per Share – ModernGraham

2014 (estimate) $0.59
2013 $0.40
2012 $0.29
2011 $0.30
2010 $0.35
2009 $0.48

Dividend History


Cabot Oil and Gas Corporation does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, the insufficient level of earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.35 in 2010 to only an estimated $0.59 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 23.66% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return 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 and Gas Corporation (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.

Disclaimer:  The author did not hold a position in Cabot Oil and Gas Corporation (COG) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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