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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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To: Dennis Roth who wrote (38)	1/22/2008 8:16:48 AM
From: Dennis Roth	Read Replies (1) of 111

Cabot Oil & Gas Corp. (COG): Raising target price after positive meeting with management January 22, 2008 What's changed We met with Cabot management last week as part of our energy conference. Implications We came away with greater confidence in resource expansion opportunities in Appalachia and East Texas: (1) we believe the company increasingly feels confident that one of its Marcellus Shale acreage blocks could hold 1 Tcfe of recoverable resource potential; (2) a successful James Lime well in the northwest portion of Cabot’s acreage position that opens up additional locations; and (3) initial exploration success on a deep Cotton Valley wells in the Trawick joint venture in East Texas. We are revising upwards our EPS estimates and now see growth of 12% in 2008, above management guidance of 10%. While the stock has outperformed in recent weeks, we believe further outperformance is possible as it appears the company is seeing success in these three areas. Cabot is levered to our bullish view on natural gas, and we believe greater appreciation for rising resource potential in Appalachia and East Texas is the key catalyst for further upside. Valuation We are raising our 12-month DCF-based target price to $53 from $50 based on increased unbooked resource we see in Appalachia and East Texas. We see 36% upside potential to current levels versus 32% upside for E&P stocks. Cabot currently trades at 7.7x 2008 EV/debt-adjusted cash flow. We believe a premium EV/DACF multiple is warranted due both to Cabot’s longer reserve life and increased unbooked resource potential. Cabot is on our Conviction Buy List. We now assume 3Q, 4Q and 2008 EPS estimates of $0.50 ($0.49 previously), $0.60 ($0.58 prior) and $2.14 ($2.11 previously). Key risks Commodity price volatility, drilling results, cost pressures and government pronouncements are key risks.

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