Cabot Oil and Gas on Analyst’s “Most Dangerous” List

David Trainer, President of New Constructs, Inc., thinks Cabot’s balance sheet is ” hiding a lot of things that are going on”.

Cabot has $313 million in asset write downs. This is not surprising in that virtually all shale companies are heavily engaged in asset write downs at present. ¬†Impairments can occur when management has overpaid for assets it subsequently had to write down. The most glaring example of this was BHP’s write down of its Fayetteville assets for more than 50% of the purchase price. The assets were bought from Chesapeake Energy.

Trainer stated about Cabot:

“So for every dollar you give this management team, they have had to write down 10 cents…this is an indicator or how well management destroys value.”

In addition to the write downs, Cabot also has a large deferred tax liability of $850 million.

Trainer thinks a fair value for Cabot shares is about $25. The stock currently trades at approximately $48.

 

The author holds no shares in Cabot Oil and Gas. Nor is this any sort of recommendation to buy or sell shares.