Cimarex is a hydrocarbon exploration company with drilling ops in Texas, New Mexico, and Oklahoma. The firm finished 2019 with 620 million barrels of proven reserves, as well as an average daily production of 278.5 thousand barrels of oil equivalent. Such a solid foundation helped the company during the corona crisis of 1H20.
Despite that cushion, the economic crisis during the recent months hit Cimarex hard. Oil demand dropped critically during the lockdowns. The company’s production in the second quarter averaged 254.7 thousand barrels of oil equivalent daily, which was well below 2019 levels.
However, Cimarex generated $145 million in cash from operations, investing $84 million during the quarter. $49 million of that investment is going into well completion and drilling. Furthermore, the company’s balance sheet is strong. It doesn’t need to borrow against the revolving credit facility. Even though Cimarex has an outstanding debt of $2 billion, its notes do not mature until 2024.
The company finished the second quarter with a $44 million cash balance, as well as $26 million in free cash flow after funding the dividend.
And its dividend is attractive for investors. Cimarex has announced the current payment, due later this month, of 22 cents per common share. And it is higher compared to the end of last year. The yield, at 3.2%, is also well above average.
William Janela, Credit Suisse’s analyst, noted that Cimarex is his top pick among SMID-cap E&Ps due to its defensive balance sheet and attractive relative valuation, as well as an ability to fund both an above-average dividend yield and capex within cash flow.
Janela rated Cimarex as a Buy and set his price target at $39. In case of success, shareholders would gain 33% over the year.
The stock has a Moderate Buy rating from the analyst consensus, though, based on 12 Buys against 4 Holds. Its current share price is $29.10. However, the $37.08 average target implies an upside potential of 27%.
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