Energy stocks have had an interesting start to the 2020s. The global pandemic has affected nearly all sectors of business, and the energy sector didn’t escape unscathed.
Cabot Oil & Gas has been a steady performer in the energy sector for many years but is COG stock a buy?
Cabot Oil & Gas 101
Cabot Oil & Gas Corporation was founded in 1989 in Houston, Texas. The company went public in March 1990 with an IPO of $1.38 a share and exhibited a steady to slow rise throughout the 1990s.
Cabot has quietly grown their business over the years starting in 1994 with the acquisition of Washington Energy Resources.
The company purchased $180 million dollars of WER stock which caused controversy within the company as to the timing of the purchase. Chairman & CEO John Lollar was ousted from the company in 1995 due to this controversy.
After a brief sell-off period in 1997, Cabot continued to improve after the demise of the Lollar Era. The company acquired Cody Energy for $230 million in 2001 and continued its growth throughout the 2000s.
It was added to the S&P 500 Index in 2008 and ran into another period of selling off some of its assets in the 2010s. Cabot then exhibited its highest stock price during this period, reaching a high of $39.55 per share in January 2014.
Cabot Revenues Are Down
Cabot Oil & Gas in 2020 was fairly steady throughout the year with their stock price which saw bump ups in March & April at the then-height of the pandemic.
The company posted revenues of just over $333 Million dollars for Q3 2020, which is 20% down from where they were a year ago.
The decline in revenues and profits has hindered COG share price, and the result is potentially an undervalued stock.
An in-depth financial analysis reveals that the share price has an intrinsic value of $22.16, suggesting there’s upside potential for the company.
Analysts are sitting on the fence, however, though leaning bullish on the whole, with 11 rating COG a Hold while 9 assign a Buy rating.
California Resources (CRC), Canadian Natural Resources (CNQ), and ConocoPhillips (COP) trade in the same competitive space. Like Cabot, Conoco earnings took a hit when demand for gasoline dipped as tourism dried up. But Conoco bottom line is expected to bounce back well.
Canadian Natural Resources (CNQ) saw its revenues and earnings tumble too but all signs point to a strong 2021 resurgence.
Lawsuits Against Cabot Oil & Gas Threaten Upside
Cabot has had a shaky 2020; the Pennsylvania Attorney General’s Office in June charged the company with 15 criminal counts due to faulty gas wells which leaked into the soil causing pollution into the waterways.
Cabot Oil & Gas is also defending a class-action lawsuit stemming from these environmental hazards allegedly caused by the company.
Unfortunately, this isn’t Cabot’s first environmental violation as they were cited back in 2009 for toxic hydraulic fluid spills in northeastern Pennsylvania.
The outlook for the lawsuit is still unclear at this point as litigation continues, but a negative outcome from this in 2021 would not bode well for the short-term.
Sales Are Sluggish Despite Seasonal Demand Spike
Traditionally, this is the busiest time of the year when it comes to Natural Gas consumption. Due to warmer weather and less demand for Natural Gas, the outlook for this quarter looks to be sluggish in terms of sales.
This will cause an across-the-board dip in prices all along the energy and heating sector. This outlook will likely have an effect on Cabot’s 1Q stock price performance.
The sluggish outlook for the home heating sector may have negative effects on sales and revenue for Q1 and will also affect its competition.
The ongoing class-action lawsuit against the company also poses some unanswered questions and uncertainty towards the company long-term.
Increased utility usage during the global pandemic has helped energy companies across the board post higher-than usual numbers throughout the year in certain areas. These numbers look to come back down to normal once the pandemic reaches a conclusive outcome.
That outcome could happen as soon as late summer or fall of this year as vaccinations reach a majority of the countries around the world.
Realistically, countries could start lifting restrictions and lockdowns in certain areas late this year or possibly early next year.
Is Cabot Oil and Gas Stock A Buy? The Bottom Line
Cabot Oil & Gas Corporation looks ahead in 2021 to some bumps in the road between the current litigation against the company and the sluggish outlook for the first quarter.
The long-term analysis is less clear at this point due to the ongoing pandemic and the sluggish rollout of vaccinations.
With the possible lifting of lockdowns and restrictions in the future (possibly Q3 or Q4) this will result in fewer people at home and consequently, less utility usage.
This may also have an effect on Natural Gas prices at that time, but it’s too early to hypothesize a clear prediction.
In the short-term, Cabot Oil & Gas looks to hold steady and possibly lose ground due to the sluggish outlook for consumption, so Cabot Oil & Gas is more a Hold than a Buy.
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