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Wall Street Piles on Natural Gas Stock Bearishness

Stocks in this article: CHK CRK SWN EQT COG

Comstock and Chesapeake, though, are already trading at or near 52-week low levels, implying that the market has already shunned these stocks based on the natural gas outlook. Cabot Oil & Gas, on the other hand, after rising 102% last year, is exposed to great risk for a decline in market valuation. Cabot shares have fallen 16% in the past five trading sessions.

On Friday, Cabot found some support from the market, up 1%, even as the energy sector continued to fall by 1% and Chesapeake shares declined by 2%. The key to the Cabot gas story is that it's drilling in the most economic gas region, the Marcellus shale, which according to some industry estimates can support natural gas prices as low as $2.25 to $2.50.

The negative news flow about natural gas pricing, in fact, led Cabot to release specific pricing information on Thursday and commentary from its CEO taking issue with market price quotes that Cabot thinks are inaccurate.

"I felt compelled to respond to the continued misinformation around our pricing that continues to find its way into discussions." Dan Dinges, Cabot CEO said in a release. "These commodity prices, while not where we want them, still afford our Marcellus project a significant rate of return around 55 to 60 percent before hedges because of their best in class characteristics."

Dinges added, "We have always been known for our discipline and this environment will not change that. We were successful in reducing our debt between 2010 and 2011, even with a robust investment program that created significant growth. We will continue to evaluate the best path forward for 2012, balancing rates of return with growth and cash flow."

Stifel took a broad view of the natural gas pricing weakness impact and the E&P stocks generally, lowering price targets on Cimarex Energy (XEC), EQT (symbol), Newfield Exploration (NFX), and Southwestern Energy (SWN) -- though all of the revised price targets still remain above current market values for these stocks, and Stifel rates Southwestern and EQT as "deep value" plays among gas stocks.

In general, Stifel said valuation for the group isn't attractive relative to risks related to 2012 guidance, margin compression from inflation, and even in cases where crude oil has been a driver for gains in exploration and production stocks, the lack of sustainability in a crude oil trade buttressed by geopolitical tensions between Iran and the West.

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