Coterra

Methodology

Coterra's oil and gas production earnings swing dramatically with commodity prices, requiring normalized price assumptions for meaningful fair value calculations. Current-year earnings at spot prices distort intrinsic value when oil and gas trade at cyclical extremes. The method works best using mid-cycle commodity assumptions rather than trailing or peak prices.

Methodology

Coterra typically trades at very low PEG ratios (often below 0.5x) during commodity upswings, reflecting market skepticism about earnings sustainability at elevated prices. Production growth comes from modest drilling programs rather than aggressive expansion. PEG misleads for E&P companies because earnings volatility reflects commodity price swings rather than business quality improvements.

Methodology

Coterra pays a substantial dividend yielding 3-5% plus variable returns tied to free cash flow generation, making PEGY significantly more attractive than PEG. The company's return-focused capital allocation prioritizes cash returns over production growth. Total shareholder yield can exceed 8-10% in strong commodity environments, making yield-adjusted valuations more relevant.