Comstock Resources (CRK) Update - May 15

[dan_s]

As usual the Wall Street Gang sold off the stock when this common stock offering was announced, but look what the proceeds are being used for. Yes, the additional shares are dilutive, but the cash will be used to retire the preferred stock, which is a superior equity to the common stock. For modelling purposes the additional 46 million shares adds to the denominator for calculating earnings and cash flow per share, but getting rid of the preferred stock "debt" justifies using a higher multiple of cash flow to value the common stock. At most, this common stock offering will lower my valuation of CRK by $1 to $10.50. < My valuation assumes Comstock's realized natural gas price in 2021 will average $2.50/mcf.

Other analysts reports out today.
> John Gerdes at MKM Partners rates CRK a Buy on 5/15/20 with a price target of $7.00
> Neal Dingmann at SunTrust Robinson rates CRK a BUY on 5/15/20 with a price target of $8.00 (on 4/24/20 Neal's price target was $9.00)
If natural prices push over $3.00 my year-end (my forecast) then these guys will be raising their valuations.

Frisco, TX, May 13, 2020 (GLOBE NEWSWIRE) -- Comstock Resources, Inc. (“Comstock” or the “Company”) (CRK) announced today that it priced its previously announced underwritten public offering 40,000,000 shares of common stock at a price to the public of $5.00 per share. In addition, the Company has also granted the underwriters a 30-day option to purchase up to 6,000,000 additional shares of common stock at the same price per share. The offering is expected to close on or about May 18, 2020, subject to customary closing conditions.

The net proceeds to the Company, after deducting the underwriting discounts and commissions and estimated offering expenses, are expected to be approximately $190.4 million (exclusive of the underwriters’ 30-day option to purchase additional shares of common stock). The Company intends to use the net proceeds of the offering toward the redemption of the outstanding Series A Convertible Redeemable Preferred Stock .