Cabot Oil & Gas Corporation – The COG Rally Was a Mirage, Don’t Buy!

Cabot Oil & Gas Corporation (COG) was the rare energy stock actually gaining some traction on Wall Street of late. Then came Friday morning’s disappointing earnings report.

Cabot Oil & Gas Corporation – The COG Rally Was a Mirage, Don’t Buy!The Houston-based exploration and production company reported a loss of $111 million in the fourth quarter, or 2 cents per share after non-recurring costs and asset impairment costs. It’s the third straight quarter of EPS losses for COG.

What’s worse is that sales were down 40% from a year ago, the second-largest year-to-year revenue decline for COG in the last decade. The $280 million it brought in was also well shy of the $320 million analysts were expecting.

One Good Month Doesn’t Erase a Bad Year

COG shares were down more than 3% at the open after falling 4.5% Thursday, eating away at some of the gains COG has made in what had been a very strong month. Since then, COG has regained 2%, but looking out to the full month of February, COG stock is still down 4%. This means the momentum built up in January is waning.

Through Thursday’s close, COG stock was up 19% in the last month, having seemingly bottomed at $14.88 on Jan. 12. It got as high as $21.12 on Feb 3, and has since been in a two-week holding pattern between $19 and $21.

As of this writing, COG is still at the low end of that range even amid Friday’s rollercoaster intraday action. If it can stay above $19, technically speaking, that would at least keep the stock in a very normal looking base-building phase. Big picture, though, the chart doesn’t look good.

Since peaking at $38 in May 2014, COG has lost exactly half its value. The decline has accelerated since last May, falling from $35 to $15 in fewer than seven months. The decline in COG stock has virtually mirrored the company’s sales and earnings falloff. And as with most E&P companies, nose-diving oil prices are mostly to blame for Cabot’s top- and bottom-line weakness.

Sales haven’t increased since the third quarter of 2014, while per-share earnings have been in the red in four of the last five quarters, despite massive cost cutting. The cuts will continue this year, as the company is slashing its capital expense budget by 60% in 2016. That could help COG swing to a profit this year, though consensus analyst estimates foresee an EPS loss of 29 cents.

It’s tempting to bottom feed and buy COG stock just as it’s been bouncing off of 52-week lows. But given the negative earnings outlook, it’s not a value play. And after unveiling its feeble fourth-quarter performance Friday morning, the momentum COG has gathered in the past month is starting to wane.

COG Stock: At Oil’s Mercy

Ultimately, COG’s fate is tied to oil prices like just about every other energy stock. Just look at some of the returns in oil stocks over the past month:

  • Exxon Mobil (XOM): +12%
  • Chevron (CVX): +9%
  • BP (BP): +3.5%
  • Royal Dutch Shell (RDS-A): +21.5%

The reason COG stock had been showing strength in the past month is that crude oil prices rose back above $30 a barrel. With prices threatening to dip back below $30 this morning, energy stocks are slumping again.

Frankly, I wouldn’t invest in a single one of them. The energy sector as a whole is toxic right now. I don’t want the performance in my stocks at the mercy of whatever the Saudi Arabian government decides.

You shouldn’t either. It’s been a good month for Cabot Oil & Gas, but it was all a mirage. I say avoid COG — and every other energy stock — until oil prices show more than just a few weeks of promise.

As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.

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