Cabot (COG) Beats On Q2 Earnings, Expands Buyback, FCF Soars

Cabot Oil & Gas Corporation (NYSE:COG) reported second-quarter 2019 earnings per share — adjusted for special items — of 36 cents, surpassing the Zacks Consensus Estimate of 33 cents and the year-ago figure of 13 cents.

The strong results can be attributed to lower costs and slightly higher-than-anticipated production. Precisely, the company’s production came in at 213.8 billion cubic feet equivalent (Bcfe), just ahead of the Zacks Consensus Estimate of 213 Bcfe.

The company’s quarterly revenues of $534.1 million outpaced the Zacks Consensus Estimate of $491 million. Further, the reported figure was above the prior-year quarter’s revenues of $453.4 million.

In more good news for investors, the natural gas explorer said that it is expanding its share-buyback program by 25 million shares.

Production, Prices, Costs & Drilling Statistics

In the quarter under review, Cabot’s overall production totaled 213.8 Bcfe – 100% natural gas – 24% higher than the prior-year quarter volume of 172.4 Bcfe.

Average realized natural gas price (excluding hedges) rose to $2.20 per thousand cubic feet from the year-ago quarter’s $2.11. The Zacks Consensus Estimate called for a price of $2.19 per thousand cubic feet.

Total operating expenses were 23.7% lower than the second quarter of 2018, decreasing to $287 million. While transportation and gathering costs were up 24.1% year over year to $141.7 million, Cabot did not incur any operating expense in brokered natural gas activity for which it shelled out $80.1 million in the year-ago period.

Notably, total average unit costs declined to $1.41 per thousand cubic feet equivalent (Mcfe) from the year-ago figure of $1.85.

Cabot drilled 24 wells and completed 28 during the quarter.

Financial Position

Operating cash flows were $326.7 million (up 19.3% year over year), while capital expenditures totaled $225.9 million (down 2.2%). Free cash flow (FCF) — which is a key metric to gauge a company’s financial health — was $72.7 million during the second quarter, turning around from a negative $62 million a year ago. As of Jun 30, 2019, the company had cash and cash equivalents of $241.4 million and total debt of $1.2 billion, with a debt-to-capitalization ratio of 34.2%.

Share Repurchase Program

Through the second quarter, the company bought back 5.1 million shares at a weighted average share price of $24.63.

Guidance

For the third quarter, Cabot provided its net production guidance in the range of 2,360-2,410 million cubic feet equivalent a day. Meanwhile, the company adjusted its full-year production growth guidance to a range of 16 to 18%, down from the previous projection of 20%. The downward revision was attributed to a change in operating plan that will push out some production to late December or early January.

Finally, Cabot raised its full-year capital expenditure projection to $800-$820 million, as against $800 previously. The uptick reflects incremental drilling and completion activity.

Zacks Rank & Key Picks

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

Some better-ranked players in the energy space are Canadian Natural Resources Limited (TSX:CNQ) , Helix Energy Solutions Group, Inc. (NYSE:HLX) and Cheniere Energy, Inc. (NYSE:LNG) . All the companies carry a Zacks Rank #2 (Buy).

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

Over 30 days, the Calgary-based Canadian Natural Resources has seen the Zacks Consensus Estimate for 2019 and 2020 increase 5.4% and 6.6%, to $2.35 and $2.09 per share, respectively.

The 2019 Zacks Consensus Estimate for Houston, TX-based Helix Energy Solutions Group is 30 cents, representing some 57.9% earnings per share growth over 2018. Next year’s average forecast is 39 cents pointing to another 27.8% growth.

Cheniere Energy’s expected EPS growth rate for three to five years currently stands at 31.1%, comparing favorably with the industry’s growth rate of 14.7%.

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