19% Upside In Cabot Oil In Williams Capital’s View

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While stating that the E&P sector fundamentals were solid, Williams Capital’s Gabriele Sorbara recommended to select “underappreciated companies with lower expectations and re-rating potential.” The analyst initiated coverage of Cabot Oil & Gas Corporation (NYSE: COG) with a Buy rating and a price target of $30.

Strong Production Growth

“Despite the issues witnessed over the past few years with Constitution pipeline and the bottlenecks in the Northeast Appalachia region, COG has been successful in securing additional takeaway capacity,” analyst Sorbara wrote.

Cabot Oil has about 200,000 net acres in the Marcellus shale play in Susquehanna County, Pennsylvania, which is located in a “sweet spot” and represents “superior economics,” Sorbara commented.

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The company seems to be on track to support Marcellus production of 3.5 Bcf/d gross by yearend 2018, up from the 2Q16 level of 1.8 Bcf/d gross. This would enable Cabot Oil to generate solid production growth in 2018 and beyond.

Best Play On Natural Gas Market Improvement

The analyst believes Cabot Oil’s stock deserves to trade at a premium to that of its peers, given the company’s resource upside potential in the Marcellus shale play and expectations of strong EBITDA growth. “Furthermore, we believe COG is the best way to play an improving natural gas market with its improving capital efficiencies.”

Cabot Oil’s shares have underperformed YTD, having gained 42.6 percent, versus the average gain by peers of 67.7 percent. This offers “a solid entry point to add or build a position ahead of the winter natural gas demand season,” Sorbara stated.

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