recommendation: buy duc dam sarah dhaduk maria tabanian nga tran cabot oil & gas
TRANSCRIPT
Recommendation: Buy
Duc Dam
Sarah Dhaduk
Maria Tabanian
Nga Tran
Cabot Oil & Gas
Overview
Recommendation: Buy•Target price: $78.00
•Current price: $43.15 (10/25/2012)
Investment Thesis•Stable revenue•Good financial position•Potential development
Contents
•Business outlook
•Good financial position
•Stable revenues
•Potential growth
Contents
•Business outlook
Outlook
• Cabot Oil & Gas Corporation is an independent oil and gas company engaged in the development, exploitation and exploration of oil and gas properties.
• The Company’s primary areas of operation include Appalachia, east and south Texas, and Oklahoma.
(Rueters)
Primary and Secondary Markets/Products (Foreign and Domestic)
• The Company operates in one division, natural gas and oil development, exploitation and exploration, exclusively in the continental United States.
• Cabot Oil & Gas Company is only a domestic company and does not have any foreign affiliations. Approximately 96% of Cabot’s reserves and 95% of Cabot’s production is natural gas, that being its primary market. Cabot’s secondary market is petroleum.
(Rueters)
Business risks/outstanding litigations
• Toxic hydro-fracking spills
• Pennsylvania Department of Environmental Protection
Contents
•Business outlook
•Good financial position
Gross Profit, Total Revenue and Net Income
4 Year
Contents
•Business outlook
•Good financial position
•Stable revenues
Business Strategy
• COG strategy is to continuously improve.
Long – term Solvency
Annual Comparision for Debt to Capital Ratio
Long – term Solvency
Annual Comparision for Debt to Equity Ratio
Low Financial Risk
Annual Comparision for TL/TA ratio
Stable Operating Cashflow
Annual Cashflow break - down
Potential Operating Cashflow Growth
Compound Annual Growth Rate over 5 years
Contents
•Business outlook
•Good financial position
•Stable revenues
•Potential growth
SWOT
Strength•Marcellus Shale•Constant Growth
Opportunities•Future natural gas’ price
Threats•Warmer winter•Economic downturn
Weakness•Toxin during exploitation
Revenue Drivers Year Ended December 31
2011 2010 2009
Production Volumes
Natural Gas (Bcf)
Dimock Field 119.3 49.5 36.3
Totals 178.8 125.5 98.0
Crude Oil/Condensate/NGL (Mbbl)
Dimock Field - - -
Total 1,443 859 845
Equivalents (Bcfe)
Dimock Field 119.3 49.5 36.3
Total 187.5 130.7 103.0
Natural Gas Average Sales Price ($/Mcf)
Dimock Field 3.85 4.48 4.19
Total 4.46 5.69 7.61
Crude Oil Average Sales Price ($/Bbl)
Dimock Field - - -
Total 90.49 97.91 85.52
Average Production Costs ($/Mcfe)
Dimock Field 0.08 0.08 0.03
Total 0.47 0.89 1.08
Gross Margin
Valuation1 2 3 4 5
2012 2013 2014 2015 2016 g 4%
Operating Income(EBIT) 312.2835 425.2253 566.7926 743.6159 862.8368118
Less Taxes @30% 93.68505 127.5676 170.0378 223.0848 258.8510435 WACC
Add Depreciation 394.611 453.8027 521.873 600.154 690.1771053 Risk free rate 2.50%
Less Capital Expense 560.03 453.80 521.87 500.15 690.18 Market return 10%
Less Networking Capital -31.5446 -41.9229 -63.7579 -72.039 -87.0741506 Beta 0.83
Cost of equity 8.73%
Free Cash Flow 84.72 339.58 460.51 692.57 691.06 Cost of debt 6.5000%
Terminal Value 21968.59Using Gordon Growth weight of debt 0.323
Discount Factor @ WACC 0.932214 0.869023 0.810115 0.755201 0.704009035 weight of equity 0.677
Present Value of cash flow 78.98002 295.1034 373.0684 523.0297 486.5124263
Present Value of terminal value 15466.08355 WACC 7.27%
FCF firm 17222.78
FCF Equity 16272.78
Price/Share $ 78.00
Sources Used
Cabot oil & gas corporation (cog.n). Reuters. Retrieved from http://www.reuters.com/finance/stocks/companyProfile?symbol=COG.N
www.capitaliq.com
Daris, M. (2012, October 4). 3 new reasons to buy cabot now. Seeking Alpha, Retrieved from http://seekingalpha.com/article/903581-3-new-reasons-to-buy-cabot-now?source=yahoo
McFarland, J. (2012, October 2). [Web log message]. Retrieved from http://www.oilandgaslawyerblog.com/oil-and-gas-news/
Operator: Cabot oil and gas corporation. (n.d.). Retrieved from http://www.fracktrack.org/searchexp.php?p=op_name&val=OGO-10897