Southwestern Energy (SWN) Update - May 19

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Southwestern Energy (SWN) Update - May 19

Post by dan_s »

At the time of this post SWN was trading for $7.02. It definitely has upside if natural gas stays over $8.00, which I believe it will.

TipRanks: "In the last 3 months, 12 ranked analysts set 12-month price targets for SWN. The average price target among the analysts is $9.69. The 12 price targets range from $8.25 to $13.00. On 4/28/2022 Mizuho Securities analyst Vincent Lovaglio maintained a Buy rating on Southwestern Energy and set a price target of $13.00. According to TipRanks.com, Lovaglio is a top 25 analyst with an average return of 53.8% and a 89.6% success rate. Lovaglio covers the Utilities sector, focusing on stocks such as Continental Resources, Occidental Petroleum, and Comstock Resources." < The 12 analysts are using natural gas prices in their models which are much lower than the current NYMEX strip for HH gas.

First let me say that SWN almost didn't survive the pandemic and they have some VERY BAD HEDGES through 2023 required by their debt covenants. They also have over 1.1 billion shares of common stock outstanding.

That said the Company holds a lot of valuable leasehold and current production is ~4.7 Bcfe per day, one of the top natural gas producers in the U.S.

I have updated my forecast/valuation model for SWN and my valuation is $13.00.
> I am very bullish on natural gas and NGL prices, which are ~98% of SWN's production. It is too bad that hedges will keep the Company's realized natural gas price under $3.50 for the rest of the year.
> Even with 89% of their dry gas hedged, they should generate $3.8 Billion of operating cash flow and $1.8 Billion of free cash flow from operations in 2022. Free cash flow is paying down debt and their hedges actually lower SWN's commodity price risk.
> Operating cash flow should grow to more than $4.6 Billion in 2023, even though their realized dry gas price will stay under $4.00 unless HH gas goes a lot higher.
> Liquidity is not a problem and they are paying down debt at a nice clip; $508 million debt paid off in Q1.
> Balance Sheet improvement should justify a higher valuation multiple by year-end. My valuation multiple is only 4X annualized operating cash flow.
> A year from now, if HH gas is still over $6.00, a valuation of 5X CFPS would justify a price target of $20/share.

Based on my forecast, SWN's Q2 results should beat First Call's cash flow forecast by 25% to 30%. So, now is a good entry point.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Southwestern Energy (SWN) Update - May 19

Post by dan_s »

I have posted my forecast/valuation model for SWN to the EPG website.
Dan Steffens
Energy Prospectus Group
allen46
Posts: 128
Joined: Wed May 05, 2010 10:44 pm

Re: Southwestern Energy (SWN) Update - May 19

Post by allen46 »

Thanks Dan. I appreciate you responding to my request!
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Southwestern Energy (SWN) Update - May 19

Post by dan_s »

Despite the Bad Hedges, SWN is now in good shape. Free Cash Flow that is locked in by the hedging program will have their balance sheet in good shape by the end of 2023. I like the deal that got them into the Haynesville.

On Today's Live Webinar: I will be discussing why the global natural gas market is going to be tight for at least three years and why U.S. natural gas and NGL prices are likely to stay much higher than we've gotten used to over the last 14 years of being over-supplied.
Dan Steffens
Energy Prospectus Group
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