Why Cimarex Energy Co Shares Could Pop Another 25%

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Cimarex Energy Co (NYSE: XEC  ) gained slightly on Tuesday after Global Hunter Securities upgraded the oil and gas explorer from neutral to buy.

So what: Along with the upgrade, analyst Mike Kelly boosted his price target to $175 (from $116), representing about 25% worth of upside to yesterday's close. So while contrarian traders might be turned off by Cimarex's price strength over the past month, Kelly's call could reflect a sense on Wall Street that its production growth prospects still aren't fully baked into the valuation.

Now what: According to Global Hunter, Cimarex's risk/reward trade-off remains particularly attractive. "We're confident that XEC's recent boost to its underlying growth rate isn't a fluke," said Kelly. "In fact, we now expect further acceleration in 2015 (+24% growth in 2015 vs. +20% in 2014). Recent notable improvements in individual well recoveries across the company's Permian & Mid-continent acreage positions stemming from revised completion techniques (XEC is now implementing larger fracs with more stages/higher fluid & sand volumes) are also a big driver of our increased NAV value." When you couple that upbeat outlook with Cimarex's industry-topping margins, it's tough to disagree with Global Hunter's bullishness.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

9/2/2015 4:06 PM
XEC $107.97 Up +2.36 +2.23%
Cimarex Energy CAPS Rating: **