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Why Is Cabot (COG) Up 19.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Cabot Oil (COG - Free Report) . Shares have added about 19.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cabot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Cabot Q3 Earnings Jump, Hikes Dividend

Cabot Oil & Gas Corporation reported third-quarter 2018 earnings per share — adjusted for special items — of 25 cents, missing the Zacks Consensus Estimate of 27 cents. The weaker-than-expected results can be attributed to lower-than-anticipated production. Precisely, the company’s production came in at 186.5 billion cubic feet equivalent (Bcfe), lagging the Zacks Consensus Estimate of 198 Bcfe.

However, the bottom line was significantly above the earnings of 7 cents in the year-earlier quarter on the back of higher realized natural gas prices.

The company’s quarterly revenues of $545.2 million outpaced the Zacks Consensus Estimate of $459 million. Further, the reported figure was above the prior-year quarter’s revenues of $385.4 million.

In some good news for investors, the natural gas explorer raised its quarterly dividend by 17% to 7 cents per share (or 28 cents per share annualized).

Production, Realized Prices

In the quarter under review, Cabot’s overall production totaled 186.5 Bcfe – 100% natural gas – 10% higher than the prior-year quarter volume of 169.5 Bcfe.

Average realized natural gas price (excluding hedges) rose to $2.36 per thousand cubic feet from the year-ago quarter’s $2.01.

Costs & Expenses

Total operating expenses were 18.9% higher than the third quarter of 2017, increasing to $394.8 million. While transportation and gathering costs were up 9.9% year over year to $129.5 million, the higher realized prices drove the year-over-year increases in brokered natural gas activity whose operating expenses jumped to $93.4 million from just $2.8 million in the third quarter of 2017.

Drilling Statistics, Capital Expenditures & Balance Sheet

Cabot drilled 21 wells and completed 27 during the quarter. While operating cash flows were $242.2 million (up 28.1% year over year), capital expenditures totaled $260.2. million (up 34.5%). As of Sep 30, 2018, the company had cash and cash equivalents of $316.1 million and long-term debt of $1,218.8 million, with a debt-to-capitalization ratio of 36.8%.

Share Repurchase Program

Through the third quarter, the company bought back 7.2 million shares at a weighted average share price of $22.67.

Guidance

For the fourth quarter, Cabot reiterated its net production guidance in the range of 2,225-2,275 million cubic feet equivalent a day. The company also maintained its daily production growth forecast for 2018 at 7-8% and capital budget of $940 million.

Cabot has also provided preliminary guidance for 2019. It projects the production growth to be in the 20-25% range next year. The production growth is based on a capital expenditure range of $800-$850 million. Finally, the company hopes to generate between $650 million and $700 million of free cash flow in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 11.57% due to these changes.

VGM Scores

At this time, Cabot has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Cabot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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