In this article, let's take a look at Cimarex Energy Co. (XEC, Financial), a $12.32 billion market cap company, which is an independent oil and gas exploration and production company which has operations in the Mid-Continent, the Permian Basin and the Gulf of Mexico.
Return & Hedge Funds Positions
Cimarex delivers a return of almost 15%, 14.27% to be more precise, in a year to date basis, compared to the SPDR S&P 500 ETF (SPY, Financial), which inched up by 2.96% during the same period.
The two largest investors as of the end of 2014 were Charles De Vaulx’s International Value Advisers and Ric Dillon’s Diamond Hill Capital (Trades, Portfolio), both with a bit more than 3 million shares. Further, FPA Capital Fund (Trades, Portfolio) was bullish on the first quarter of 2015, adding 84.4% to its portfolio, holding 520,000 shares.
The obvious question arises: is it time to buy Cimarex? The answer becomes relevant under future results announcement. The company plans to report first quarter 2015 results on Monday, May 4.
Estimated One-Year Price
The company has recently announced a dividend hike on its regular quarterly cash dividend on its common stock. The dividend of $0.16 per share will be payable on June 1, 2015, to stockholders of record on May 15, 2015.
According to Yahoo! Finance, the estimated one-year target share price is $130.79, so if you buy shares at current market price ($121.34), your return from price appreciation would be 7.8%. In addition, you have to consider any cash flow received by the asset. For holding the stock one year, you'll be paid a dividend of $0.64 at the end of the year. If we divide this number by current price per share, we obtain the dividend yield, which is the other component of the return on an investment for a stock, and in this case is 0.5%. Therefore, the total expected return for investing in Cimarex will be 8.3%, which we believe it is attractive enough for a player in a highly volatile industry.
Ratings
Nomura recently issued a lot of buy ratings to the energy E&P sector. Among those companies, we can highlight the following companies: Anadarko Petroleum Corporation (APC, Financial), Continental Resources, Inc. (CLR, Financial), EOG Resources, Inc. (EOG, Financial), Marathon Oil Corporation (MRO, Financial) and Pioneer Natural Resources Co. (PXD, Financial). With respect to Cimarex, Nomura is Neutral. Other companies within this category are: Cabot Oil & Gas Corporation (COG, Financial) and ConocoPhillips (COP, Financial), Devon Energy Corporation (DVN, Financial) and Hess Corporation (HES, Financial).
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 21.2x, which is ranked higher than 81% of the 1,347 companies in the Global Oil & Gas E&P industry. To use another metric, its price-to-book ratio of 2.40x indicates a premium versus the industry average of 1.20x while the price-to-sales ratio of 4.38x is above the industry average of 3.17x.
Final Comment
We believe the company has a good position to reach high-growth plays while maintaining its strong financial health and good debt levels.
Taking into consideration its fourth quarter 2014 results, we are optimistic about this report now. We remember that production increased to 949.5 MMcfe while having one of the most attractive portfolio mix in the industry, with 49% natural gas, 30% oil, and 21% natural gas liquids, helping achieved a more diversify focus. Although adjusted net income fell sharply by 35% to $0.87, revenues increased by 21% to a record level of more than $2.4 billion.
I think Cimarex is a good candidate for a long-term portfolio, and also investors can take advantage that in the past few days, the price dropped, so they can earn more when the first quarter results are known.
Disclosure: Omar Venerio holds no position in any stocks mentioned
