Comstock Resources (CRK) Valuation Update - Aug 1

[dan_s]

At the time of this post, CRK was trading at $11.85.

I have updated my forecast for CRK adding Q2 actual results and adjusting Q3, Q4 and 2024 for the Company's updated guidance.

My current valuation is being lowered by $3 to $15.00/share.
My current valuation declines primarily because I have lowered the valuation multiple that I am using from 4.0 to 3.5 X annualized operating cash flow per share. That is a very low multiple for a company with close to 25 years of high-quality development drilling inventory in one of the best natural gas resource plays on Earth.

A lot of energy sector analysts were on the CRK Q2 conference call. I'm sure several of them will be adjusting their price targets.
TipRanks: "In the last 3 months, 4 ranked analysts set 12-month price targets for CRK. The average price target among the analysts is $13.50. The four price targets range from $10 to $17."

If you are bullish on the long term price of natural gas (like I am), then you should listen carefully to the replay of today's conference call.

CRK is the closest to a pure play on natural gas in any of our three model portfolios.
> They are outspending operating cash flow this year, but they have plenty of liquidity (over $1.5 billion)
> They are running six operated drilling rigs today and they will add a second high tech rig to their Western Haynesville area late this quarter.
> This company is playing the "Long Game". If their realized natural gas price goes to $3.25/mcf in 2024, Comstock's operating cash flow should exceed $1.1 billion. If their realized natural gas price goes to $5.00/mcf in 2025 (Raymond James' forecast), Comstock's operating cash flow should exceed $2.1 billion.

My forecast/valuation model for CRK will be updated on the EPG website this afternoon.

[dan_s]

Comments below are from Truist Financial.

Comstock Resources (CRK)
2Q23 Miss, But Delayed Production Could Result In Net Benefit

Comstock reported 2Q23 EBITDA/FCF slightly below Street estimates as volumes were
impacted by tornado/storm downtime. FY23 volumes are now headed towards the low end
of the guidance range, after accounting for line pressure/gathering delays and asset sales,
however given the steep contango in the gas strip we think this could actually have a net
benefit on cashflows. We expect some pressure on the shares tomorrow given the headline
miss, however we would not be surprised to see the stock somewhat recover during the call
as investors put all the pieces together.

Operational/Financial Updates
• CRK saw a ~24 mmcfepd impact to 2Q23 from tornado/storm activity, which dropped
production below our/Street estimates
• As previously announced, the company released two of its nine rigs, and made no
incremental changes to the expected plan
• CRK plans to maintain its quarterly dividend
• CRK’s fourth Western Haynesville well came on at 34 mmcfpd which targeted the lower
Bossier for the first time, putting the well slightly below prior results, but further justifying
the ~$16mm of additional acreage acquisitions in 2Q23; the fifth well came on with a
stronger 35 mmcfpd IP and is still cleaning up
• The company added initial swaps to its 2024 program, locking in ~8% of volumes, with
plans to add to the position
• Per foot costs finally saw some relief, moving down 4% q/q primarily on the completion
side, however CRK does not expect to see deflationary pressure on service costs hit the
capex line meaningfully until '24
Guidance Updates
• 3Q23 production guidance of 1,400 mmcfepd versus Truist Securities/Street estimates
of 1,525/1,468 mmcfepd
• 3Q23 capex guidance (excl. acq.) of ~$283mm versus Truist Securities/Street estimates
of $260mm/$279mm
• The FY23 acreage budget was increased by $20-25mm to $70-85mm after an active
1H23 program in the Western Haynesville
• FY23 production and capex (excluding acq.) guidance were both reiterated, however
production is now expected by the company to be at the low end
• LOE (higher water production), interest, and DD&A guidance ticked up, while production
taxes were lowered

[Fraser921]

https://seekingalpha.com/article/4622128-comstock-resources-negative-near-term-free-cash-flow

He say's they need 3.50. At $3.50 NYMEX strip in 2024, Comstock appears to be able to reach breakeven cash flow while paying its dividend At long-term $4.00 NYMEX gas, I'd value Comstock at approximately $14.50 per share.

I predict single digits before it runs to 15.

Short term weak, next year strength in keeping with Dan's latest video

[dan_s]

What Comstock has in the Western Haynesville has HUGE upside. Listen carefully to the conference call that was recorded today.

[uberCOAT]

Western Haynesville is HUGE..many don't understand the strategy here..but they will after this year end. This is a hold for me.

[Fraser921]

Despite all the good things, down another 4 % today

Negative FCF is not good any way you spin it. You can earn 20 % in other names

[dan_s]

Additional comments from Truist Financial this morning.

Comstock Resources (CRK, $12.75, Hold) - Investors Waiting
For Higher Gas Prices, But Western Haynesville Impresses -
CRK reported a 2Q miss with disappointing guidance due to
gathering system delays, high line pressures, and asset sales.
While management remained tight-lipped on certain details on
its Western Haynesville position, the company added that it
now has ~90% of its desired footprint in-house, which stands at
"hundreds of thousands" of acres. The 6-7% underperformance
today (versus the gas E&P group) seems overdone in our view,
however we reiterate our Hold rating on CRK and our view that
the company will likely underperform the group in a lower gas
price environment, but potentially outpace its peers if a ~$4/m
strip materializes. - Bertrand Donnes