Cimarex Energy's Q4 Justifies Higher NPV

Buy-recommended Cimarex (XEC) offers unlevered appreciation potential of 22% to estimated Net Present Value [NPV] of $85 a share, up from $76 a share. Fourth quarter results released on May 6 verify oil volume growth and high regional natural gas price that both contribute to higher NPV.

Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda). Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV. At the same time, the industry backdrop continues to be positive with an uptrend for oil price and catch up potential for natural gas.

Improving industry conditions along with company performance seem to be contributing to higher stock price. For example, three months ago when the stock was $46 a share, the ratio of Enterprise Value [EV] to Ebitda was 3.6. Now with the stock price up to $68 a share, EV/Ebitda remains near the same low level at 3.8.

Originally published on May 6, 2008.