What: Shares of Cabot Oil & Gas (NYSE:COG) slumped 15.6% in July. Fueling the slump was a combination of weaker oil prices, an analyst downgrade, and the company's own disappointing second-quarter report.
So what: We'll start with oil, which dropped 20% in July, starting a new bear market for the black liquid. After rebounding for much of the year, the oil market took a turn for the worse last month due to renewed fears over supply growth, namely from Iran, and weaker demand growth from China. Given that weaker oil hurts Cabot's revenue via lower oil realizations as well as its impact on NGL prices, it's no surprise to see the stock plunge along with oil.
Further, with oil growing weaker, analysts are updating their opinions on the sector with Barclays deciding that Cabot's stock was now "significantly overvalued" given its new view on oil. As a result, it stripped the company from its list of top oil and gas stocks. That being said, Goldman Sachs was actually a bit more bullish on Cabot's future by highlighting it on a list of seven companies that might draw buyout attention from an oil major due to its prime position in the Marcellus shale.
Having said that, Cabot's prime position didn't do it any favors during the second quarter as its earnings missed expectations by a penny. Further, the company isn't very bullish on its own near-term future as it has decided not to accelerate drilling activity later this year or early next year. It's in a wait-and-see mode at the moment and wants to see better prices before it increases spending.
Now what: While Cabot isn't bullish enough to invest more money to boost production, it still sees better days ahead. The company expects that a new pipeline will help it more easily move its gas to markets enabling it to fetch a better prices. That said, higher prices in general certainly wouldn't hurt.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.