My take on RRC...
Buy Range Resources!!!
Range Resources is an independent exploration and production company with operations throughout the Southern, Central, and Northeastern United States, where its focus includes the Marcellus Shale (One of the most promising and lucrative shale formations in the U.S) and Terryville Field. Range controls more than 1.5 million net acres across its various properties.
Value:
P/E (TTM) – (--) Earned an adjusted $0.03 in 2016 P/E (Fiscal Year Ending 12/31/17) – 35.8 PEG – 0.76 Discounted Free Cash Flow – $7.04
Range Resources (RRC) trades at 35.8 times this year’s earnings compared to 19.5 for the S&P500. In addition, RRC trades inexpensively relative to the company’s growth rate with a PEG ratio of 0.76, but expensive on a DCF basis.
Growth and Future:
Next Fiscal Year EPS Growth – $0.03 (2016) to $0.77 (2017e) to $1.13 (2018e) Projected 1-Year Revenue Growth – 78% Projected 3-Year Revenue Growth – 205%
2016 Full Year and Q4 Production and Pricing Numbers (per day @ average prices):
Natural Gas – 1,027 Mmcf @ $2.68 per mcf Natural Gas Liquids – 76,026 barrels @ $13.16 Crude Oil and Condensates – 9,861 barrels @ $47.82 Natural Gas – 1,244 Mmcf @ $2.93 per mcf Natural Gas Liquids – 89,628 barrels @ $17.20 Crude Oil and Condensates – 12,005 barrels @ $61.30
On a daily basis 2016 natural gas (NG) represents 65.2% of their revenue while natural gas liquids (NGL) and crude oil and condensates representing 23.7% and 11.2% respectively. Additionally, the Q4 numbers are as follows 61.5%, 26%, and 12.4%. It is a good signal to see pricing of all three of RRC’s commodities improving into the end of the year in 2016. Looking into 2017 management provided an encouraging forecast on their recent earnings conference call.
Pricing Improvements for 2017:
A recent decline in commodity prices has caused the price of the stock to crash in recent months. However, the company is projecting strong pricing improvements in 2017 over 2016; RRC sees a 33% improvement in natural gas differentials, 28% to 30% in NGLs, and a “significant” improvement in condensate pricing due to having a full year of the new sales agreement in Appalachia. (Information obtained from their most recent conference call)
Production Growth:
RRC’s management speaks very bullishly on demand going forward for natural gas due to Mexican exports, power generation, and industrial use. They project by 2020 there will be close to 38 bcf of excess natural gas demand coming from 14 bcf of additional demand on a consumption basis and 24 bcf of demand coming from base decline.
The company is also guiding to increase production by 33% to 35% in 2017 netting out to approximately 2.07 bcf equivalent per day. In addition, they said this year’s capital expenditure program would set them up for 20% production growth in 2018.
Cost Reductions:
Range Resources acquired Memorial Resource last year, which has substantial properties located in Louisiana. When the merger closed the cost of drilling a well in this region totaled $8.7 million and as of reporting Q4 results the cost has declined to $7.7 million.
The above links to the all in cost of extracting natural gas. Range has seen consistent declines in the average price over recent years setting them up to benefit greatly for a move higher in commodity prices.
Dividend:
Project Dividend/Yield – $0.08 / 0.29% 1-Year Dividend Growth – 0.00%
Past Performance:
ROE – -12.8%
Fair Value:
The stock is trading near its 52-week low, the market seems to have already priced in a lot of the bearish thesis that natural gas prices will head lower due to the warmer than expected winter. However, as discussed earlier, combine higher commodity prices, increased production, and lower all in costs and you get a pretty bullish investment thesis for Range Resources. Valuing the company can prove to be a little more difficult though. Morningstar gives RRC a fair value of $38 (38% upside) by giving the company a 13 times enterprise value/EBITDA. Meanwhile, Barron’s commentary recently spoke positively on the stock and said it could reach $40 a share. I believe these are both solid valuations.
When To Sell:
The main risk to the Range Resource story is commodity pricing. The company will need to be continually reevaluated based on any moves down in these prices.
If you are interested in more pitches check out /r/TheInvestmentClub
Submitted March 13, 2017 at 10:25AM by Gthom9 http://ift.tt/2mDT8Lb
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