On Wednesday, CFRA, a prominent financial research firm, adjusted its outlook on Southwestern Energy (NYSE:SWN), reducing the stock's price target from $6.50 to $6.00 while maintaining a Hold rating. The revision comes in light of the company's impending acquisition by Chesapeake Energy (NYSE:CHK 79 ), with the new target price reflecting the terms of the agreement.
The analyst at CFRA revised the earnings per share (EPS) estimates for Southwestern Energy, decreasing the 2024 forecast by $0.07 to $0.58 and the 2025 estimate by $0.09 to $1.11. These changes are based on the analyst's assessment of the natural gas market and the company's operational focus.
The U.S. Energy Information Administration (EIA) has predicted that the benchmark gas price, Henry Hub, will average $2.20 per million British thermal units (MMBtu) in 2024, with an expected increase of approximately 41% to $3.10/MMBtu in 2025. However, CFRA's outlook is less optimistic about the magnitude of this price increase, suggesting that the actual figures in 2025 may not meet the EIA's forecast.
Southwestern Energy's production profile includes approximately 42% of its year-to-date (YTD) natural gas production in the Haynesville Shale. This region is considered a higher-cost area, which may face challenges, especially if spot prices do not rise as anticipated.
Despite a more conservative view on future spot prices, the analyst noted that Southwestern Energy has some financial safeguards in place. The company has hedge protection for 2025 at about $3.60/MMBtu, which is above the estimated break-even level. However, this protection only covers roughly 26% of the projected natural gas production for that year, according to CFRA's analysis.
In other recent news, CFRA has revised its price target for Southwestern Energy, lowering it from $7.50 to $6.50, while maintaining a hold rating on the stock. This adjustment comes in light of Southwestern Energy's upcoming acquisition by Chesapeake Energy. The new target is based on a 4.0x multiple of Southwestern's enterprise value to its projected 2025 EBITDA.
CFRA has also increased its earnings per share (EPS) estimates for Southwestern Energy. The 2024 EPS estimate has risen by $0.08 to $0.65, and the 2025 estimate has increased by $0.06 to $1.20, following the company's second-quarter EPS of $0.10.
In relation to the merger between Southwestern Energy and Chesapeake Energy, the Federal Trade Commission (FTC) has requested additional information. This is noteworthy as Southwestern Energy currently accounts for 4% of the U.S. market with its production of 3.56 billion cubic feet per day, while Chesapeake Energy contributes 3% of the market with its 2.75 bcf/d production.
Finally, the U.S. Energy Information Administration (EIA) has projected a recovery in Henry Hub natural gas prices to $2.90 per million British thermal units in the second half of 2024, and a rise to $3.30/MMBtu in 2025. This anticipated price recovery is largely due to the forecast of shut-ins later in the year.
InvestingPro Insights
InvestingPro data and metrics provide a deeper dive into Southwestern Energy's financial health and market performance. With a market capitalization of approximately $7.45 billion and a challenging trailing twelve months marked by a revenue decrease of over 50%, the company's financial landscape is complex. Despite this, Southwestern Energy has demonstrated a significant return over the last week, with an 8.03% price total return, indicating short-term investor confidence. This aligns with an InvestingPro Tip highlighting the stock's strong return over the last five years, suggesting resilience in the face of market fluctuations.
Two key InvestingPro Tips for Southwestern Energy include the analysts' prediction that the company will be profitable this year, despite not having paid dividends to shareholders. This forward-looking optimism is tempered by the reality that the company operates under a significant debt burden and that short-term obligations currently exceed liquid assets. For investors considering the stock, these insights are crucial, especially when evaluating the company's ability to navigate its financial commitments and growth potential.
For those seeking more detailed analysis and additional insights, InvestingPro offers more tips on Southwestern Energy, which can be found at https://www.investing.com/pro/SWN. Understanding the nuanced financial landscape of Southwestern Energy can help investors make more informed decisions in the context of the company's recent performance and the broader energy market's outlook.
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