Yahoo Finance How Does Cimarex Energy’s Relative Valuation Compare to Peers?
How Cimarex Energy Has Performed in the Energy Downturn
Cimarex Energy’s relative valuation
The below table shows different fundamental ratios for S&P 500 (SPY) upstream companies that have a similar production mix or overlapping geographical areas of operation.
Cimarex Energy (XEC) has a higher forward EV/EBITDA ratio of ~11x when compared with other natural gas producers like Southwestern Energy (SWN), which has a forward EV/EBITDA ratio of ~7x. Even when compared with other upstream companies that have higher liquids production in their production mixes like Murphy Oil (MUR) and Noble Energy (NBL), XEC’s valuation appears to be at a premium. Murphy Oil (MUR) and Noble Energy (NBL) have forward EV/EBITDA ratios of ~6x and ~8x, respectively.
Pioneer Natural Resources (PXD), a bigger player, has a forward EV/EBITDA ratio of ~13x, which is higher when compared with XEC’s. So, overall XEC’s valuation appears to be at the higher end when compared with its peers. The average EV/EBITDA ratio for the upstream industry is ~12.2x.
Even when compared with the price-to-book metric, XEC appears much more expensive at ~2.34x. XEC is in the middle of the range on a price-to-sales basis at ~4.78x.
Why is XEC trading at a premium?
From the above table, one trend is clear. Companies with higher leverage or a lower current ratio are trading at a discount to their book value, or have lower price to sales. A possible explanation for this could be the fear of an energy-driven debt crisis if commodity prices stay low, or move further down. Also given a path of rising interest rates at a time when energy companies are so indebted and are scrambling for access to capital, interest expenses for highly leveraged companies can rise further.
As of 3Q15, XEC has a lower debt-to-equity ratio of ~44% and a much higher current ratio of ~2.57. Thus, it is trading at a premium to its peers.
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