I have updated my forecast/valuation model for Range's strong Q2 results and updated guidance. My current valuation increases to $49.00, but there is significant upside if ngas prices go where I expect them to go this winter. BTW lots of the Wall Street Gang were on the CC, so I expect some upgrades today and tomorrow.
At the time of this post, RRC was trading for $33.17.
My valuation increases by $1/share primarily because of their aggressive share repurchase program. My 6X operating CFPS multiple is conservative.
HH ngas is currently over $9.00/MMBtu, probably because of the shorts that are needing to cover their positions in the AUG22 contract. My 2H 2022 forecasts are based on $7.00 ngas in Q3 and $7.50 in Q4. I am using $5.00HH ngas for 2023. NGL prices continue to look very strong.
There is also more upside for RRC if it continues to pay down debt, which it should do since FCF s/b well over $1.5 billion this year. Once their leverage ratio gets under 1.0 X EBITDA, I expect them to start paying nice dividends in 2023. A strong balance sheet, dividends and lots of running room should push this stock over $50 early in 2023. Range holds lots of EXTREMELY VALUABLE leasehold in the Marcellus/Utica play.
Take a hard look at slide 15 of today's presentation to see the upside for RRC.
My updated forecast/valuation model for RRC will be posted to the EPG website this afternoon.
Range Resources (RRC) Valuation Update - July 26
Range Resources (RRC) Valuation Update - July 26
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Range Resources (RRC) Valuation Update - July 26
Stifel's update:
Range Resources Corporation (RRC, $31.83, Buy; Target $51.00)
Share Buybacks Ramping, 2Q Beats - Michael S. Scialla - We view the release as
slightly positive. The positives included: i) 2Q22 FCF was 6% above consensus as
discretionary cash flow was 2% above and capex was 7% below; ii) RRC repurchased
$130MM of stock during the quarter; iii) 2022 natural gas price differential guidance
improved 10% while all other guidance remained unchanged. The negatives include:
i) 2Q22 cash costs were 4% above our forecast; i) 2022 capex is expected to land near
the high-end of a tight (4%) range. In summary, return of capital is accelerating as the
balance sheet is rapidly improving. While inflation is likely to push 2022 capex above
the midpoint of guidance, RRC appears to be holding most costs in check as margins
expand. Accordingly, the company is well positioned to ramp share repurchases
further in 2H22 while achieving its absolute debt target by the end of the year.
My Quick Take: If HH ngas averages over $8.00 through Q1 2023, Range's PV10 Net Asset Value of just their proved reserves (P1) should be over $60/share.
Range Resources Corporation (RRC, $31.83, Buy; Target $51.00)
Share Buybacks Ramping, 2Q Beats - Michael S. Scialla - We view the release as
slightly positive. The positives included: i) 2Q22 FCF was 6% above consensus as
discretionary cash flow was 2% above and capex was 7% below; ii) RRC repurchased
$130MM of stock during the quarter; iii) 2022 natural gas price differential guidance
improved 10% while all other guidance remained unchanged. The negatives include:
i) 2Q22 cash costs were 4% above our forecast; i) 2022 capex is expected to land near
the high-end of a tight (4%) range. In summary, return of capital is accelerating as the
balance sheet is rapidly improving. While inflation is likely to push 2022 capex above
the midpoint of guidance, RRC appears to be holding most costs in check as margins
expand. Accordingly, the company is well positioned to ramp share repurchases
further in 2H22 while achieving its absolute debt target by the end of the year.
My Quick Take: If HH ngas averages over $8.00 through Q1 2023, Range's PV10 Net Asset Value of just their proved reserves (P1) should be over $60/share.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Range Resources (RRC) Valuation Update - July 26
Note from Raymond James
2Q22 quick take: Solid performance, debt and buybacks take center stage — Production
fell in line with Street and barely missed RJe (-1%) at 2,074 Mcfe/d. We anticipate production
will ramp in the back half to make good on RRC’s guidance of 2.12-2.16 Bcfe/d. CFPS and EPS
both fell in line with consensus while beating RJ estimates thanks to solid price realizations.
Capex beat Street coming in at $127M, accounting for 27% of guided 2022 capital budget.
However, Range guided to the high end of the $460-480M capex budget range (a theme
we anticipate seeing a lot this quarter). Debt reduction and shareholder returns remain
the focus, with RRC repurchasing 4.5 million shares for ~$130M and reducing outstanding
debt by $217M following the retirement of 2022 notes. After increasing guidance on certain
expense items last quarter, RRC feels confident in their ranges, only adjusting realized gas
pricing.
Non-GAAP EPS: 2022E $4.78 2023E $5.89 < Compares to my 2023 forecast of $6.19 Adjusted Earnings Per Share
2Q22 quick take: Solid performance, debt and buybacks take center stage — Production
fell in line with Street and barely missed RJe (-1%) at 2,074 Mcfe/d. We anticipate production
will ramp in the back half to make good on RRC’s guidance of 2.12-2.16 Bcfe/d. CFPS and EPS
both fell in line with consensus while beating RJ estimates thanks to solid price realizations.
Capex beat Street coming in at $127M, accounting for 27% of guided 2022 capital budget.
However, Range guided to the high end of the $460-480M capex budget range (a theme
we anticipate seeing a lot this quarter). Debt reduction and shareholder returns remain
the focus, with RRC repurchasing 4.5 million shares for ~$130M and reducing outstanding
debt by $217M following the retirement of 2022 notes. After increasing guidance on certain
expense items last quarter, RRC feels confident in their ranges, only adjusting realized gas
pricing.
Non-GAAP EPS: 2022E $4.78 2023E $5.89 < Compares to my 2023 forecast of $6.19 Adjusted Earnings Per Share
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Range Resources (RRC) Valuation Update - July 26
Note from Truist Financial
Range Resources Corporation (RRC, $31.83, Hold) - Solid
2H22/2023 Shareholder Return Setup - Range continues to not
only make progress on lowering leverage to <1x, but notable FCF
should enable the company to also opportunistically repurchase
shares and soon reinitiate its dividend. We expect RRC could
also generate sequentially higher 2023 production growth as
opportunities arise versus its current low single-digit pace. The
company should benefit from its continuous development plan
focused on maximizing existing pads, and other operations that
minimize costs. RRC continues to trade slightly higher than its
peers in our coverage group, leading to our continued sideline
rating. - Neal Dingmann
Range Resources Corporation (RRC, $31.83, Hold) - Solid
2H22/2023 Shareholder Return Setup - Range continues to not
only make progress on lowering leverage to <1x, but notable FCF
should enable the company to also opportunistically repurchase
shares and soon reinitiate its dividend. We expect RRC could
also generate sequentially higher 2023 production growth as
opportunities arise versus its current low single-digit pace. The
company should benefit from its continuous development plan
focused on maximizing existing pads, and other operations that
minimize costs. RRC continues to trade slightly higher than its
peers in our coverage group, leading to our continued sideline
rating. - Neal Dingmann
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Range Resources (RRC) Valuation Update - July 26
Note from RBC Capital: Increasing price target to $45
Executing a Good Plan
Our view: A resilient capital program and continued efficiency gains in the
field are holding costs in check better than peers, in our view. RRC should
remain fairly assertive with stock buybacks because of the robust FCF
outlook and management's view that its stock are intrinsically attractive.
We think the buyback pace could pick up into 2023 as RRC nears leverage
goals, which means the authorization likely needs to be increased by YE22.
Key points:
Buybacks are center stage; dividends just around the corner. FCF
prioritizes debt reduction and share buybacks, but the $0.08/share
quarterly dividend becomes payable in 3Q22. Buybacks remain a focus
because management sees RRC shares trading well below intrinsic of
$60+/share. Management remains opportunistic with shareholder returns
and likely flexes buybacks during market dislocations. Last quarter RRC
repurchased $130 million of equity at a 6% discount to the average stock
price. RRC should reach its $1.0-1.5 billion gross debt target level in early
2023, which could be catalyst for increasing direct shareholder returns.
Growth, but not in the traditional E&P sense. Holding production relatively
flat is likely unchanged into 2023. The value of the consistent and
repeatability program is delivering good cost and capital efficiencies. If
Appalachian infrastructure constraints ease and the gas macro supports
more volumes, we think some growth could be a consideration in 2024+.
Cash flow margins and per share value are growing organically and will
be aided with gathering rate reductions (through 2030), interest expense
savings with debt reduction efforts, and a healthy buyback program.
Inflation into 2023 tracking up 10-15%. Inflation this year remains well
controlled with RRC affirming the 2022 budget, though spending likely
comes in toward the high end of guidance consistent to prior messaging.
RRC is one of the first US E&Ps to report 2Q22 results, but we think this
becomes a differentiator as we expect most peers likely increase budgets.
Continued efficiency gains in the field, along with RRC's peer-leading capital
efficient maintenance program provide offsets to inflationary trends.
Management's early thoughts on 2023 are for 10-15% inflation, which
should be slightly better than peers/E&Ps given RRC's stable activity levels,
existing well pads, and service relationships.
Bringing activity back to the Northeast. RRC recently drilled a handful of
wells on its Northeast Appalachia assets, with the company planning to
bring 9 wells to sales in the area during 2H22. This will be the first batch
of wells RRC has completed in the area since 2017. We think initial well
results could come at 3Q22 earnings, and be a discussion point on early
2023 activity plans at that time.
We increase our price target by $1/share to $45. The increase is related to
the stronger buyback pace (lower share count) and improved FCF outlook
Executing a Good Plan
Our view: A resilient capital program and continued efficiency gains in the
field are holding costs in check better than peers, in our view. RRC should
remain fairly assertive with stock buybacks because of the robust FCF
outlook and management's view that its stock are intrinsically attractive.
We think the buyback pace could pick up into 2023 as RRC nears leverage
goals, which means the authorization likely needs to be increased by YE22.
Key points:
Buybacks are center stage; dividends just around the corner. FCF
prioritizes debt reduction and share buybacks, but the $0.08/share
quarterly dividend becomes payable in 3Q22. Buybacks remain a focus
because management sees RRC shares trading well below intrinsic of
$60+/share. Management remains opportunistic with shareholder returns
and likely flexes buybacks during market dislocations. Last quarter RRC
repurchased $130 million of equity at a 6% discount to the average stock
price. RRC should reach its $1.0-1.5 billion gross debt target level in early
2023, which could be catalyst for increasing direct shareholder returns.
Growth, but not in the traditional E&P sense. Holding production relatively
flat is likely unchanged into 2023. The value of the consistent and
repeatability program is delivering good cost and capital efficiencies. If
Appalachian infrastructure constraints ease and the gas macro supports
more volumes, we think some growth could be a consideration in 2024+.
Cash flow margins and per share value are growing organically and will
be aided with gathering rate reductions (through 2030), interest expense
savings with debt reduction efforts, and a healthy buyback program.
Inflation into 2023 tracking up 10-15%. Inflation this year remains well
controlled with RRC affirming the 2022 budget, though spending likely
comes in toward the high end of guidance consistent to prior messaging.
RRC is one of the first US E&Ps to report 2Q22 results, but we think this
becomes a differentiator as we expect most peers likely increase budgets.
Continued efficiency gains in the field, along with RRC's peer-leading capital
efficient maintenance program provide offsets to inflationary trends.
Management's early thoughts on 2023 are for 10-15% inflation, which
should be slightly better than peers/E&Ps given RRC's stable activity levels,
existing well pads, and service relationships.
Bringing activity back to the Northeast. RRC recently drilled a handful of
wells on its Northeast Appalachia assets, with the company planning to
bring 9 wells to sales in the area during 2H22. This will be the first batch
of wells RRC has completed in the area since 2017. We think initial well
results could come at 3Q22 earnings, and be a discussion point on early
2023 activity plans at that time.
We increase our price target by $1/share to $45. The increase is related to
the stronger buyback pace (lower share count) and improved FCF outlook
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group