Williams Capital Waiting For A Better Entry Point For Cimarex Energy

Williams Capital started coverage of Cimarex Energy Co (NYSE: XEC) with a Hold rating and $143 price target, saying that the risk/reward profile is better elsewhere in the sector at the current valuation.

Cimarex has a great inventory of drilling locations across two of the hottest domestic resource plays, the Wolfcamp/Bone Spring plays in the Delaware Basin and STACK play in the Anadarko Basin.

"While we acknowledge the upside and catalysts from its core positions in the Delaware and Anadarko Basins, we are sitting on the sidelines for a better entry point," analyst Gabriele Sorbara wrote in a note.

Currently, the company's main objective is to preserve its cash on hand (about $641.7 million at end of second quarter) and hold acreage through the downturn to ramp up once the commodity prices go up.

Based on the brokerage's commodity price assumptions, Sorbara expects a cash flow short fall of approximately $73.3 million through mid-2017 and free cash flow in 2H17 and beyond.

"In conjunction with gassier well profiles, we believe shares lack enough upside to justify a buy rating based on our 2018 estimates and RNAV discount. However, we are cognizant that an election to accelerate activity in the Delaware and Anadarko Basins may drive the production growth trajectory, re-rating shares," Sorbora added.