And as mentioned earlier, natural gas prices remain solidly above $3/MMBtu. This could be due to the drop in WTI since my previous article, but I would remind shareholders that despite COG's oil production in the Eagle Ford, natural gas still represents the overwhelming majority of production (96%). The company also increased its E&P budget by $125 million "for exploratory leasing and testing." Despite the increase in spending, COG is currently forecasting over $250 million of positive free cash flow for the year based on recent strip prices.Īs mentioned earlier, despite the excellent Q1 report, shares are actually down since my BUY recommendation at $24. The full-year production guidance range was raised from 5-10% to 8-12% (up 2.5% at the mid-point). Yet the market yawned and couldn't seem to care less. But what is not negligible is management's obvious confidence in cash-flow going forward, and its intention to grow the dividend in the future. The yield is not what is important here (only 0.84%) - it is a negligible consideration from an investment perspective. Yet natural gas is still trading solidly over $3 and closed yesterday at $3.25/MMBtu:Īs a result of the excellent EPS report, COG announced the quarterly dividend would be increased 150% to $0.05/share. But since the stock dropped, apparently the market believes COG's momentum is not sustainable. So what was not to like? It wasn't like the market expected such a great Q1 report: EPS beat by $0.03/share and revenue beat by a whopping $55 million. As I pointed out in my previous article, realized prices for natural gas were expected to be much stronger, and they were: $2.64/Mcf versus $1.49 in the year earlier period (+77%). Cash flow of $269 million was up 300% and production grew 7% yoy. Net income of $105.7 million ($0.19/share) compared to a net loss of $51.2 million in Q1 of 2016. That presents an opportunity for investors. The market is not giving COG any respect and is apparently in disbelief that fundamentals are changing. Considering my BUY recommendation at $24 (see COG: The Cage Door Is Opening), it's worth taking another look at the company in lieu of the stock going down in spite of very positive developments. My last article on Cabot Oil & Gas (COG) was published less than a month ago, but much has happened since then.
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