Cabot Oil & Gas was one of the better performing S&P stocks
of 2013, gaining around 50% for the year. Most of the gain can be
attributed to its exposure to the high-return Marcellus and Eagle
Ford Shale plays, as well as its above-average production growth. A
relatively low risk profile and longer reserve lives are other
positives in the Cabot story. But given natural gas' volatile
fundamentals and Cabot's high exposure to the commodity, we do not
believe that the stock can sustain the momentum in the near future.
Cabot's steep valuation and miniscule payout also keep us worried.
Considering these factors, we are maintaining our Neutral
recommendation on the company's shares.
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 2012, the company had 3.84 trillion cubic feet
equivalent (Tcfe) in proved reserves (96% natural gas). Cabot's
output totaled 267.7 billion cubic feet equivalent (Bcfe) in 2012,
of which more than 94% was natural gas.
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