Comstock Resources (CRK) Update - Dec 27

[dan_s]

CRK is trading at $8.67 at the time of this post. First Call's price target is $13.21, slightly higher since my last update.

Despite lowering my forecast natural gas prices for Q4 2021 and the year 2022, my valuation for CRK remains at $20/share.
Why? Because they closed the sale of their Bakken oil producing assets on November 16th and natural gas prices are still much higher than they were a year ago.
> Sales proceeds from the Bakken Sale were $154 million, and the Company is generating over $100 million for FCF per quarter.
> A stronger balance sheet and with NO NEAR-TERM DEBT PROBLEMS, CRK deserves a higher cash flow multiple for valuation.
> I increased my valuation multiple from 4.0 to 4.5, which is still very low for a company of this quality.
> Comstock has over 1,900 net HZ drilling locations in the Haynesville Shale play that have OUTSTANDING well level economics at $3.00 natural gas price.
> With my forecast realized natural gas price at $3.30/mcf for 2022, Comstock should generate over $1.1 Billion of operating cash flow in 2022, which compares to $490 million in 2020 and $952 million in 2021.
> Even if Comstock's 2022 realized natural gas price were to be $2.50/mcf the Company would still generate free cash flow next year.

The only thing that I see which justifies today's share price is that some of the Wall Street Gang still has a perception that Comstock has a debt problem. It does not. In addition to lots of free cash flow from operations, Comstock's year-end reserve report is going to show a big increase in P1 reserves and net asset value.

The Haynesville still has a lot of upside and Jerry Jones' company is the best way to play it.