I have updated my forecast/valuation model for CRK and posted it will be posted to the EPG website in a few hours.
I have lowered by valuation by $1 to $11/share.
> The Company should start generating solid FCF from operations in Q4 and ~$250 million in 2021
> Q4 production will be less than my previous forecast, but production should be up 9% to 10% YOY in 2021 based on their guidance
> $900 million of liquidity under their revolver and no reason to need any of it since operating cash flow now exceeds capex spending.
> No senior debt due until 2025
> ~98% of production is natural gas with ~40% exposed to higher prices than we have today for gas.
> The fact that over 60% of their gas hedged for 2021 is the only negative that I see.
> If ngas prices do spike in 2021, CRK has the liquidity to add more drilling rigs quickly.
Comstock Resources (CRK) Update - Nov 8
Comstock Resources (CRK) Update - Nov 8
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Comstock Resources (CRK) Update - Nov 8
Comstock Resources, Inc. (CRK, $4.71, Buy; Target $9.10)
- Sell-off creates an attractive entry point for a premier low-cost dry gas operator
- Derrick Whitfield , the top energy sector analyst at Stifel
- In our view, Comstock is oversold on fundamental and technical measures. Comstock entered earnings as a consensus long with a macro tailwind and exited the quarter with near-term production and capital efficiency concerns. We firmly believe the capital efficiency concerns, which are based on the timing of cash flows compared to when capital expenditures occurred, are overblown. Assuming natural gas prices remain firm and the company can protect its incremental investment with hedges, we estimate the decision to add a seventh rig is NPV neutral (~2%) through 2022 and materially NPV positive (+10%) through 2023 and beyond. Despite the fundamental case for this decision, Comstock has underperformed its closest gas weighted peer by ~15%. Net-net, while Q320 earnings was far from clean, our conviction on the stock has strengthened due to management's decision to potentially accelerate development
- Sell-off creates an attractive entry point for a premier low-cost dry gas operator
- Derrick Whitfield , the top energy sector analyst at Stifel
- In our view, Comstock is oversold on fundamental and technical measures. Comstock entered earnings as a consensus long with a macro tailwind and exited the quarter with near-term production and capital efficiency concerns. We firmly believe the capital efficiency concerns, which are based on the timing of cash flows compared to when capital expenditures occurred, are overblown. Assuming natural gas prices remain firm and the company can protect its incremental investment with hedges, we estimate the decision to add a seventh rig is NPV neutral (~2%) through 2022 and materially NPV positive (+10%) through 2023 and beyond. Despite the fundamental case for this decision, Comstock has underperformed its closest gas weighted peer by ~15%. Net-net, while Q320 earnings was far from clean, our conviction on the stock has strengthened due to management's decision to potentially accelerate development
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group