Cimarex Energy Company

Cimarex Energy is increasing oil and gas production at the same time that crude is hitting record prices, a bullish combination for an exploration company. The company has surprised on estimates the last four quarters by an average of 17.89%. Even with the stock soaring, Cimarex still trades with a forward P/E of only 10.82.

Full Analysis

Cimarex Energy Company (XEC - Snapshot Report) is an oil and gas exploration and production company with a strategy of growing profits by expanding its drilling program and production rates.

XEC, a Zacks #1 Rank (Strong Buy), has its principal operations in three location: the Mid-Continent, which includes Oklahoma and Texas; the Permian Basin, which includes Texas and New Mexico; and the Gulf of Mexico.

The company diversifies its risk by drilling in the lower-risk Mid-Continent and Permian Basin properties which have proven reserves in contrast to its higher-risk Gulf Coast and Gulf of Mexico projects.

Cimarex Reports A Stellar First Quarter

On May 6, Cimarex reported first quarter earnings that easily beat Wall Street estimates by 17.33%. Net income was $149.8 million, or $1.76 per share, compared to $64.6 million, or 77 cents per share, in the first-quarter 2007. Analysts expected $1.50 per share.

Revenue soared 54.8% to $454.4 million from $293.5 million in the year ago period. The company stated that the increase in revenues was a result of higher production and, of course, the higher oil and gas prices.

Gas prices increased 25% to $8.38 per thousand cubic feet (Mcf) and oil soared 71% to $94.38 per barrel from the first quarter 2007.

In the first quarter of 2008, Cimarex drilled 126 gross (76 net) wells, completing 95% of the gross wells. Gas production rose 5% over the first-quarter 2007 and oil production grew 16%. XEC said the growing production reflected strong drilling results.

Production Expected to Grow Year-Over-Year

Cimarex projects second-quarter 2008 production volumes to range between 478-488 MMcfe/d. Full-year 2008 production is forecast to be in the range of 475-495 MMcfe/d, or an 8-12% increase over 2007 after adjusting for various property sales. The budget for exploration and development capital investment is expected to stay in the range of $1.1 to $1.3 billion for the year.

Analysts Continue to Raise Estimates

As happened in the first quarter as oil and gas prices rose sharply, the brokerage analysts have been scrambling to raise estimates for the second quarter and the full year.

In the last month, second quarter consensus estimates rose by 18 cents to $1.81 from $1.63. For the full year, estimates are up 6% in the last 30 days to $6.81 from $6.40 per share.

Despite the stock trading near 52-week highs, Cimarex still has attractive value characteristics. Its forward P/E is still only 10.82. XEC's price-to-book is 1.69, under the industry average of 2.76.

The company has an excellent five year average return on equity (ROE) of 16.48%. As an added bonus, Cimarex has a dividend yield of 0.40%.