Cimarex Energy Co. (XEC) is changing its previous organic production track record and improving its execution in the Permian basin, one of the U.S. unconventional assets with the most upside from a resource estimate perspective, while trading at a lower valuation than some of its group peers, says Cameron Horwitz, Director of Exploration and Production at U.S. Capital Advisors LLC.
“[XEC is] now deploying more than half of their capital budget in the Permian. I think that stands to increase even further as we move into 2013. All that said, the stock is trading at about 4.4 times our 2013 EBITDA estimate, while some of their higher-growth Permian peers are trading at about seven times,” Horwitz said.
Horwitz says Cimarex could change its historical norms of having a difficult time posting organic growth, and it could grow volumes in the double digits. He also expects the investment the company has made in the basin to result in a positive surprise for XEC shareholders.
“We think Cimarex can grow oil volumes by almost 20% in 2013, because of the increased investment in the Permian basin. That’s a deviation from historic norms, and I think that would be a positive surprise relative to expectations and allow the stock to go through a rerating process and multiple expansion,” Horwitz said.
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