On Wednesday, Barclays made an adjustment to Range Resources Corp 's (NYSE:RRC) stock rating, upgrading it from Underweight to Equalweight. Alongside this change, the firm also set a new price target for the company at $34.00.
The revised outlook comes as the analyst noted the stock's valuation relative to peers Antero Resources (NYSE:AR) and Chesapeake Energy (NYSE:CHK) has become more attractive.
The analyst pointed out that Range Resources is now trading at approximately a 0.4x premium on its 2025-2026 enterprise value to EBITDA (EV/EBITDX) compared to its gas peers, which is a significant reduction from the 1x premium it held six months prior. This shift in valuation is seen as a result of the stock's performance relative to Antero Resources (AR) and Chesapeake Energy (CHK).
Range Resources is recognized for its long-term inventory sustainability, with over 25 years of inventory duration, 87% of which is capable of generating a return of at least 10% even if the price of natural gas falls to $2.50 per thousand cubic feet equivalent (Mcfe). This robust inventory profile is a key factor in Range Resources' ability to maintain a premium valuation compared to its peers.
Additionally, the analyst identified two factors that could drive the stock's upside. First, Range Resources has a flexible program planned for 2025, which provides the company with options to either grow volumes or maintain current production levels while reducing capital expenditures.
Second, there is potential for the company to enhance shareholder value through an increase in stock buybacks, which are expected to rise from approximately $60 million in fiscal year 2024 to around $180 million for fiscal year 2025.
Despite a slight decrease in the price target from $35 to $34, due to lower liquids pricing, the analyst remains optimistic. The new target is based on a blended multiple of 7x the company's estimated 2025 enterprise value to EBITDA and 1x net asset value (NAV). The company's net debt is also comfortably within its targeted range of $1 billion to $1.5 billion, allowing for flexibility in capital allocation.
In other recent news, Rigel (NASDAQ:RIGL) Resource Acquisition Corp. secured a $1.5 million interest-free loan from its sponsor, Rigel Resource Acquisition Holding LLC, to support its operational expenses and business combination efforts. The loan agreement was detailed in an 8-K filing with the U.S. Securities and Exchange Commission.
Meanwhile, Range Resources Corporation (NYSE:RRC) announced the retirement of board member Steve Gray, set for October 2024. Gray's tenure since 2018 has significantly contributed to the company's resilience and efficiency.
In other recent developments, Range Resources Corp. reported strong Q2 earnings for fiscal year 2024, highlighting operational efficiency and cost management.
The company generated notable free cash flow and a production rate of 2.15 billion cubic feet equivalent per day (Bcf/d), with projections to maintain this momentum at around 2.2 Bcf/d for the latter part of the year.
However, Piper Sandler downgraded Range Resources from an Overweight to a Neutral rating, primarily due to a revised long-term natural gas price forecast.
Furthermore, Range Resources has been active in capital management, repurchasing $20 million of its stock and buying back $48 million of notes due in 2025 at a discount. Piper Sandler emphasized the company's solid balance sheet, considered one of the strongest among its gas-focused peers.
The firm also highlighted the company's potential for counter-cyclical investments, which could lead to capital-efficient growth in fiscal year 2025.
InvestingPro Insights
To complement Barclays' analysis, recent data from InvestingPro offers additional context on Range Resources' financial position and market performance. The company's market capitalization stands at $7.47 billion, with a P/E ratio of 15.42, indicating a relatively moderate valuation compared to earnings. This aligns with Barclays' observation of Range Resources' valuation becoming more attractive relative to its peers.
InvestingPro Tips highlight that Range Resources operates with a moderate level of debt, which supports the analyst's note on the company's net debt being within its targeted range. This financial flexibility could indeed allow for the increased stock buybacks projected for fiscal year 2025.
Additionally, InvestingPro data shows that Range Resources has been profitable over the last twelve months, with a strong return over the last five years. This performance history lends credence to the company's ability to maintain its premium valuation, as noted in the Barclays report.
For investors seeking a deeper understanding of Range Resources' financial health and market position, InvestingPro offers 7 additional tips beyond those mentioned here. These insights could provide valuable context for evaluating the company's long-term inventory sustainability and potential for shareholder value creation.
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