Comstock Resources (CRK) Updated Valuation - May 5

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Comstock Resources (CRK) Updated Valuation - May 5

Post by dan_s »

I planned to be on Comstock's live Q1 CC this morning, but I had to get out around 10AM this morning for a "project" for Susan. "If Momma ain't happy, no one is happy", to I had no choice.

I have listened to the replay of Comstock's conference call and I recommend that you do the same.

I have updated my forecast/valuation to the midpoint of their updated production guidance, which is just slightly higher than their February guidance.

My valuation increased by $2.10 to $11.35, primarily because I have dropped 2020 results from my valuation formula, plus I now have more confidence in the model because line item expenses have been confirmed by Q1 results and their guidance.

Why so much higher than the current share price of $5.65 and First Call's price target of $7.35?
> First Call's price target is the average of some very old valuations in the Reuters' datebase; some when HH gas was still around $2.00. The most current valuation of $8.00 in the Reuters database is dated 4/20/2021.
> At $5.65, CRK is up 29% YTD, so off to a good start.
> Despite its size (now over 1.3 Bcfe of production per day) this company gets very little coverage.
> 98% of their production is dry gas and companies with more liquids draw more attention, however their location in the Haynesville has outstanding market access. Their Q1 actual realized gas price was $2.79/mcf, net of cash settlements on their hedges.
> The restructuring of their debt caused them to report a Q1 net loss, but restructuring did lower future interest expense and significantly improved the Company's debt structure. I don't think the Wall Street Gang totally understands the importance of debt structure. Comstock now has no near-term debt problems.
> Today, Comstock's hedging program is viewed as a negative, but it is designed to give them confidence in their operating cash flow, which it does.
> Comstock will generate $3.50 to $4.00 of operating cash flow per share this year. My valuation of just 3X operating CFPS is conservative.
> Last but not least: If natural gas prices hold up near $3.00 all year, Comstock is going to report a HUGE increase in the PV10 value of the their proved reserves (P1) at year-end.
Dan Steffens
Energy Prospectus Group
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