Comstock Resources (CRK) Valuation Update - May 4
Posted: Wed May 04, 2022 11:17 am
At the time of this post CRK was trading at $16.65, up 106% YTD.
I have updated my forecast/valuation model for the Company's Q1 results and their detailed guidance for the rest of this year.
My valuation increases by $4.50 to $31.00 and I am using natural gas prices that are well below the current NYMEX strip ($6 in Q2 & Q3, $6.50 in Q4 and $5 in 2023). I have raised my valuation multiple from 4.0 to 4.5 X annualized operating cash flow per year, which is a low multiple for a company with this much running room (over 1,600 Haynesville HZ drilling locations).
TipRanks: "In the last 3 months, 4 ranked analysts set 12-month price targets for CRK. The average price target among the analysts is $20.00." < NONE of the analysts' price targets submitted to TipRanks have been updated since April 22. On that date Stifel's price target was $22.00.
What I like:
> Comstock is going to pay off a big chunk of debt this quarter and will have a VERY STRONG balance sheet heading into Q3.
> At the midpoint of their guidance, production should be up 5.5% from Q1 to Q2 and continue to increase steadily into year-end. They are running 7 operated drilling rigs and 3 completion crews.
> Based on my forecast (using conservative gas prices), Comstock should generate over $750 million of free cash flow from operations this year. Assuming that HH gas averages $8.00 for the remainder of 2022, the Company should generage over $1 billion of free cash flow.
> After they get the leverage ratio down to 1.5 X EBITDA, I expect Comstock to start paying dividends. Even if the dividend is small, this is a big deal because lots of hedge funds can only invest in companies that pay dividends.
> Last but not least: As discussed during Q&A, Comstock is going to increase the amount of gas they sell directly to LNG export companies. In 2H 2022 I expect this to allow Comstock to sell a significant amount of gas at premium prices.
There were lots of analysts on the Q1 conference call. I expect several of them to raise their price targets this week.
I have updated my forecast/valuation model for the Company's Q1 results and their detailed guidance for the rest of this year.
My valuation increases by $4.50 to $31.00 and I am using natural gas prices that are well below the current NYMEX strip ($6 in Q2 & Q3, $6.50 in Q4 and $5 in 2023). I have raised my valuation multiple from 4.0 to 4.5 X annualized operating cash flow per year, which is a low multiple for a company with this much running room (over 1,600 Haynesville HZ drilling locations).
TipRanks: "In the last 3 months, 4 ranked analysts set 12-month price targets for CRK. The average price target among the analysts is $20.00." < NONE of the analysts' price targets submitted to TipRanks have been updated since April 22. On that date Stifel's price target was $22.00.
What I like:
> Comstock is going to pay off a big chunk of debt this quarter and will have a VERY STRONG balance sheet heading into Q3.
> At the midpoint of their guidance, production should be up 5.5% from Q1 to Q2 and continue to increase steadily into year-end. They are running 7 operated drilling rigs and 3 completion crews.
> Based on my forecast (using conservative gas prices), Comstock should generate over $750 million of free cash flow from operations this year. Assuming that HH gas averages $8.00 for the remainder of 2022, the Company should generage over $1 billion of free cash flow.
> After they get the leverage ratio down to 1.5 X EBITDA, I expect Comstock to start paying dividends. Even if the dividend is small, this is a big deal because lots of hedge funds can only invest in companies that pay dividends.
> Last but not least: As discussed during Q&A, Comstock is going to increase the amount of gas they sell directly to LNG export companies. In 2H 2022 I expect this to allow Comstock to sell a significant amount of gas at premium prices.
There were lots of analysts on the Q1 conference call. I expect several of them to raise their price targets this week.