Based on the number of near-term challenges, we are lowering our
recommendation for Cabot Oil & Gas to Underperform from
Neutral. With oil in a freefall, the company's earnings and cash
flows are bound to suffer, at least in the near-to-medium term.
This is expected to limit its ability to deliver positive earnings
surprises. Natural gas' volatile fundamentals and Cabot's high
exposure to the commodity are also causes for concern. As it is,
Cabot's steep valuation and miniscule payout keep us worried.
Considering these factors, we see Cabot as a risky bet.
Cabot Oil and Gas (COG), based in Houston, Texas, is an
independent oil and gas exploration company with producing
properties mainly in the U.S. Founded over 100 years ago in
Pennsylvania, Cabot originally operated in the Appalachian
Mountains of the eastern U.S. before moving the bulk of its
activities to the Gulf Coast. Today, the company has four domestic
focus areas: the Appalachia, east and south Texas, and Oklahoma. As
of year-end 2013, the company had 5.45 trillion cubic feet
equivalent (Tcfe) in proved reserves (97% natural gas). Cabot's
output totaled 413.6 billion cubic feet equivalent (Bcfe) in 2013,
of which more than 95% was natural gas.
Cabot Oil & Gas Corporation (COG): Read the
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