On Friday, Southwestern Energy (NYSE:SWN) experienced a change in stock rating as Piper Sandler adjusted its stance on the company, shifting from "Overweight" to "Neutral." The revision also came with a reduction in the price target, now set at $7.00, down from the previous $8.00.
This adjustment by Piper Sandler follows a revision of the near-term natural gas price forecast by their Macro Research team, predicting a challenging natural gas price environment in the near term.
Piper Sandler's decision is not based on doubts about the completion of Southwestern Energy's pending merger with Chesapeake Energy (NYSE:CHK), which is not currently covered by the analyst's research. The merger process has recently progressed, with the companies receiving a second request for documents from the Federal Trade Commission (FTC).
Instead, the firm cites concerns over Southwestern Energy's higher operating and financial leverage, which may be disadvantageous in a scenario where gas prices are weaker than previously anticipated.
The firm offers a comparative perspective, noting that investors might find better opportunities in companies that are positioned lower on the cost curve, have greater exposure to oil and liquids, and are pricing in a lower implied gas price.
Piper Sandler maintains an "Overweight" rating on other energy companies such as Coterra Energy (NYSE:CTRA) and Range Resources (NYSE:RRC), which are seen as more favorably positioned under the current market conditions.
InvestingPro Insights
In light of Piper Sandler's recent rating change for Southwestern Energy (NYSE:SWN), investors might find additional context from InvestingPro data and tips useful. Southwestern Energy's market capitalization stands at $8.06 billion, with a notably low P/E ratio of 2.63 for the last twelve months as of Q1 2023, suggesting a potentially undervalued stock relative to earnings. Furthermore, the company's stock is trading near its 52-week high, indicating strong recent performance despite the challenges in the natural gas market.
From the perspective of financial health, InvestingPro Tips highlight a concern: Southwestern Energy's short-term obligations exceed its liquid assets. However, the company has been able to cover its interest payments with cash flows over the past year. Additionally, analysts predict Southwestern Energy will be profitable this year, a sentiment backed by the company's profitability over the last twelve months.
InvestingPro offers more insights for those considering SWN's potential in their portfolio. With a total of 8 additional InvestingPro Tips available, users can gain a deeper understanding of the company's financial nuances. To access these tips and further refine your investment strategy, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. This code can provide valuable savings as you explore comprehensive analysis on Southwestern Energy and other investment opportunities.
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