We issued an updated research report on upstream energy player, Cimarex Energy Co. XEC on Dec 29, 2016.
The energy market has seen improvement in both oil and natural gas prices of late. These developments are highly beneficial for the company. However, Cimarex Energy anticipates lower output in 2016.
As a result, Cimarex Energy carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Cimarex Energy has established a track record of focused and disciplined exploration and production capital spending, which has driven growth in the past. Management’s conservatism can be gauged by the fact that the company does not recognize undeveloped reserves as part of its proven reserves for reporting purposes. As a result, almost all of the company’s reserves are developed.
The company outperformed the Zacks categorized Oil & Gas-U.S Exploration and Production industry, year to date. During the aforesaid period, the company gained almost 53% compared with 43.3% improvement for the broader sector. Cimarex Energy also managed to post an average positive earnings surprise of 149.21% in the past four quarters in spite of the prolonged weakness in commodity prices.
Most importantly, the business scenario for exploration and production companies seems highly favorable at the moment. Natural gas price has recovered substantially from the 17-year low mark of around $1.6 per million British thermal units (MMBtu) – recorded during the first quarter – and is currently above the key psychological level of $3 per MMBtu. Cold weather forecast has pushed the commodity price up as many homes in the U.S. need natural gas for heating purposes. Moreover, the recent deal between OPEC and non-OPEC producers to curb output amid oversupplied commodity market has led crude to gain momentum. The developments are beneficial for upstream energy firms like Cimarex Energy as the companies will be able to sell the commodities at higher prices.
However, Cimarex Energy has lowered full-year 2016 production guidance to 960–970 MMcfe/d from 980–1000 MMcfe/d. The forecast is also lower than the 2015 output level of 985 MMcfe/d as project completions took longer than anticipated. Lower output, especially when oil and gas prices have started improving, might lead to reduced earnings for the upstream player.
Stocks to Consider
Some better-ranked firms in the energy sector are Newfield Exploration Company NFX, McDermott International, Inc. MDR and Suncor Energy Inc. SU. All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.