Comstock Resources (CRK) Valuation Update - Nov 3
Posted: Thu Nov 03, 2022 5:00 pm
CRK closed today at $17.72
I have updated my forecast/valuation model for CRK based on their Q3 actual results and guidance for Q4. My valuation is lowered by $1 to $44/share.
My valuation is 5X annualized operating cash flow for 2022 & 2023. I was using 5.5X annualized operating cash flow for 2021 to 2023. I am double weighting 2022 in both calculations. In my opinion, 5X CFPS is a very conservative valuation for a company with this much running room.
TipRanks' average price target is $20.64, but only Stifel Nicolaus has updated their price target since CRK released Q3 results. Stifel's PT is $25.00
Why is my valuation so much higher?
> I am bullish on natural gas: CRK is as close to a "Pure Gasser" as I can find. 99.9% of their production is natural gas, primarily from the Haynesville Shale.
> CRK's operating cash flow per share increased from $2.12 in 2020, $3.92 in 2021, on pace to $7.54 in 2022 and my forecast is $11.32 in 2023.
> All of CRK's "Bad Hedges" expire at 12-31-2022. Including cash settlements on their hedges, their realized ngas price was $5.36 in Q3 and s/b $4.69 for 2022.
> My 2023 forecast assumes their realized ngas price will be $6.25/mcf next year.
> Even if CRK's realized ngas price is $5.00/mcf next year, their operating cash flow s/b over $8.50/share.
> The Company's balance sheet is in great shape. They have no debt problems. They started paying dividends, which should increase in 2023.
> Free cash flow s/b over $750 million this year and over $1 billion in 2023.
> VERY IMPORTANT: Comstock has a lot of "Running Room" (over 1,600 HZ development drilling locations) in one of the best natural gas plays on Earth that will benefit from rising LNG exports. The Haynesville Shale play in NW Louisiana has ample pipeline takeaway capacity and gas can be sent directly to several of the large LNG export facilities on the US Gulf Coast. At today's natural gas price, all of Comstock's horizontal wells payout all of their D&C costs in less than a year.
I have updated my forecast/valuation model for CRK based on their Q3 actual results and guidance for Q4. My valuation is lowered by $1 to $44/share.
My valuation is 5X annualized operating cash flow for 2022 & 2023. I was using 5.5X annualized operating cash flow for 2021 to 2023. I am double weighting 2022 in both calculations. In my opinion, 5X CFPS is a very conservative valuation for a company with this much running room.
TipRanks' average price target is $20.64, but only Stifel Nicolaus has updated their price target since CRK released Q3 results. Stifel's PT is $25.00
Why is my valuation so much higher?
> I am bullish on natural gas: CRK is as close to a "Pure Gasser" as I can find. 99.9% of their production is natural gas, primarily from the Haynesville Shale.
> CRK's operating cash flow per share increased from $2.12 in 2020, $3.92 in 2021, on pace to $7.54 in 2022 and my forecast is $11.32 in 2023.
> All of CRK's "Bad Hedges" expire at 12-31-2022. Including cash settlements on their hedges, their realized ngas price was $5.36 in Q3 and s/b $4.69 for 2022.
> My 2023 forecast assumes their realized ngas price will be $6.25/mcf next year.
> Even if CRK's realized ngas price is $5.00/mcf next year, their operating cash flow s/b over $8.50/share.
> The Company's balance sheet is in great shape. They have no debt problems. They started paying dividends, which should increase in 2023.
> Free cash flow s/b over $750 million this year and over $1 billion in 2023.
> VERY IMPORTANT: Comstock has a lot of "Running Room" (over 1,600 HZ development drilling locations) in one of the best natural gas plays on Earth that will benefit from rising LNG exports. The Haynesville Shale play in NW Louisiana has ample pipeline takeaway capacity and gas can be sent directly to several of the large LNG export facilities on the US Gulf Coast. At today's natural gas price, all of Comstock's horizontal wells payout all of their D&C costs in less than a year.