Southwestern Energy (SWN) Up 30% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Southwestern Energy (SWN). Shares have added about 30% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Southwestern Energy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Southwestern Energy’s Q4 Earnings Beat Estimates, Reserves Grow

Southwestern Energy Company (NYSE:SWN) reported fourth-quarter 2019 adjusted earnings of 18 cents per share, beating the Zacks Consensus Estimate of 10 cents. However, the bottom line declined from the year-ago profit of 31 cents.

Quarterly operating revenues of $745 million missed the Zacks Consensus Estimate of $748 million and declined from $1,175 million in fourth-quarter 2018.

The better-than-expected earnings were supported by higher liquids production, partially offset by lower average realized commodity prices.

Total Production Declines

The company’s total fourth-quarter production fell to 208 billion cubic feet equivalent (Bcfe) from 234 Bcfe a year ago. Gas production in the quarter was 160 Bcf, lower than the year-ago level of 194 Bcf.

However, oil production surged to 1,486 thousand barrels (MBbls) from 1,073 MBbls in the year-ago quarter. Natural gas liquids production in the quarter under review was recorded at 6,609 MBbls, higher than the year-ago level of 5,434 MBbls. It is to be noted that almost 77% of its volume mix constituted of natural gas.

Average Realized Prices Fall

The company’s average realized gas price in the quarter, excluding derivatives, fell to $1.81 per thousand cubic feet (Mcf) from $2.98 a year ago. Oil was sold at $46.37 per barrel compared with the year-earlier level of $50.87. Natural gas liquids were sold at $12.46 per barrel, lower than $18.59 in the year-ago period.

Expenses

On a per-Mcfe basis, lease operating expenses were 94 cents compared with the prior-year level of 93 cents. General and administrative expenses per unit of production were 19 cents, up from 18 cents in the year-ago period.

Financials

Southwestern Energy’s total capital expenditure during the fourth quarter was $207 million.

As of Dec 31, 2019, the company’s cash and cash equivalents were $5 million. Long-term debt was $2,242 million, which represents a debt-to-capitalization ratio of 40.9%.

Proved Reserves Grow

As of Dec 31, 2019, the company’s total proved reserves increased 7% to 12.7 Tcfe from 2018-end.

Guidance

The upstream energy player expects 2020 capital spending in the band of $860 to $940 million. The midpoint of the range reflects a 20% decline from last year’s budget. For 2020, the company expects to produce gas equivalent volumes in the range of 830 to 865 Bcfe, up from last year’s 778 Bcfe.

For 2020, the company expects lease operating expenses in the range of 92 to 97 cents per Mcfe. The high end of the projected range is above the prior year’s 92 cents per Mcfe.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -52.16% due to these changes.

VGM Scores

Currently, Southwestern Energy has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Southwestern Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.