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Cabot (COG) Q3 Earnings Miss on Weak Output, Hikes Dividend

Cabot Oil & Gas Corporation COG 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).

Cabot Oil & Gas Corporation Price, Consensus and EPS Surprise

 

Cabot Oil & Gas Corporation Price, Consensus and EPS Surprise | Cabot Oil & Gas Corporation Quote

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.

Zacks Rank & Stock Picks

Cabot Oil & Gas carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are oilfield service players Helix Energy Solutions Group, Inc. HLX and Unit Corporation UNT, and energy explorer Magnolia Oil & Gas Corporation MGY. All the companies carry a Zacks Rank #2 (Buy).

(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)

The 2018 Zacks Consensus Estimate for Helix Energy is 23 cents, representing some 253.3% earnings per share growth over 2017. Next year’s average forecast is 29 cents, pointing to another 26.5% growth.

The 2018 Zacks Consensus Estimate for Unit Corporation is 83 cents, representing some 53.7% earnings per share growth over 2017. Next year’s average forecast is $1.12, pointing to another 34.3% growth.

Meanwhile, over 30 days, Magnolia Oil & Gas has seen the Zacks Consensus Estimate for 2018 and 2019 increase 13.3% and 12.5%, to $1.70 and $1.80 per share, respectively.

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