Range Resources (RRC) Update from BofA - Oct 27
Posted: Wed Oct 27, 2021 1:46 pm
Below are comments from BofA Equity Research. Their price target is $30.
Cash flow approximately in-line with expectations
After market close, Range Resources Corp (RRC) reported underlying (adjusted) EPS / CFPS
of $0.52 / $1.13 compared to consensus of $0.54 / $1.07 which we call in line, with
production of 2.14 mmcfe/d. However FY output is lowered about 1% to 2.12-2.13 Bcfe/d
essentially a rounding error vs prior guidance of 2.15 bcfe/d due to gathering and
transportation outages and weather related force majeure events. Some offset comes from a
slight drop in FY capex (lowered by about $10mm to $415mm); for now RRC’s estimate of
sustaining capital is unchanged at $425mm. Guidance items are mixed: notably, full year gas
and natural gas liquids (NGL) price realization guidance has improved by $0.07/mcfe and
$0.25/bbl; however transport, gathering, processing and compression guidance has moved up
to $1.48 - $1.52/mcfe from $1.43-$1.47 - entirely related to higher NGL pricing. All-in-all, a
solid quarter as RRC continues to focus on debt reduction. Note that headline line loss of
($1.42) / sh includes a noncash derivative loss of ($652) mm.
Look for further discussion on future return of capital
RRC continues to make progress on paying down debt ($91mm reduction) with line of
sight of a 1x net debt to EBITDA by end of 2022 at strip prices. Net debt ended the
quarter at $2.73bn – but cumulative free CF at strip prices looks over $1bn through year
end 2022. Previously, management has suggested that it would like to see net debt /
EBITDA at a sustainable level of 1.5x at $2.75/mmcfe HH gas - before moving onto the
discussion of the return of capital to shareholders, and ideally, 1.0x net debt to EBITDA.
Reiterate Buy given improving outlook
RRC did layer in some additional hedge contracts. By our estimates, it has about 63% of
its natural gas hedged in 2022 compared to 42% prior. However we do not view this as
a big negative as it has mostly added collars as it remains cautious until such times as
debt targets are achieved. Still, debt provides equity leverage to current natural gas and
NGL prices – and with over two decades of inventory, we see RRC’s ex growth
sustainable free cash flow as undervalued at current levels. Notable is that RRC’s shares
look weak after the close – aside from the additional hedges we see nothing in earnings
to justify a sell off. RRC remains our preferred gas name - PO unchanged at $30.
Cash flow approximately in-line with expectations
After market close, Range Resources Corp (RRC) reported underlying (adjusted) EPS / CFPS
of $0.52 / $1.13 compared to consensus of $0.54 / $1.07 which we call in line, with
production of 2.14 mmcfe/d. However FY output is lowered about 1% to 2.12-2.13 Bcfe/d
essentially a rounding error vs prior guidance of 2.15 bcfe/d due to gathering and
transportation outages and weather related force majeure events. Some offset comes from a
slight drop in FY capex (lowered by about $10mm to $415mm); for now RRC’s estimate of
sustaining capital is unchanged at $425mm. Guidance items are mixed: notably, full year gas
and natural gas liquids (NGL) price realization guidance has improved by $0.07/mcfe and
$0.25/bbl; however transport, gathering, processing and compression guidance has moved up
to $1.48 - $1.52/mcfe from $1.43-$1.47 - entirely related to higher NGL pricing. All-in-all, a
solid quarter as RRC continues to focus on debt reduction. Note that headline line loss of
($1.42) / sh includes a noncash derivative loss of ($652) mm.
Look for further discussion on future return of capital
RRC continues to make progress on paying down debt ($91mm reduction) with line of
sight of a 1x net debt to EBITDA by end of 2022 at strip prices. Net debt ended the
quarter at $2.73bn – but cumulative free CF at strip prices looks over $1bn through year
end 2022. Previously, management has suggested that it would like to see net debt /
EBITDA at a sustainable level of 1.5x at $2.75/mmcfe HH gas - before moving onto the
discussion of the return of capital to shareholders, and ideally, 1.0x net debt to EBITDA.
Reiterate Buy given improving outlook
RRC did layer in some additional hedge contracts. By our estimates, it has about 63% of
its natural gas hedged in 2022 compared to 42% prior. However we do not view this as
a big negative as it has mostly added collars as it remains cautious until such times as
debt targets are achieved. Still, debt provides equity leverage to current natural gas and
NGL prices – and with over two decades of inventory, we see RRC’s ex growth
sustainable free cash flow as undervalued at current levels. Notable is that RRC’s shares
look weak after the close – aside from the additional hedges we see nothing in earnings
to justify a sell off. RRC remains our preferred gas name - PO unchanged at $30.