Southwestern Energy (NYSE:SWN) -2.1% in Thursday’s trading as Goldman Sachs cut the stock to Sell from Neutral with a $5 price target, flipping its rating with Range Resources (NYSE:RRC), which the bank upgraded to Neutral from Sell with a $31 PT.
Southwestern’s (SWN) focus has been to keep production flat, generate free cash flow and reduce its net debt to $3B-$3.5B from ~$3.95B currently, but given this year’s difficult natural gas price environment, the company has cut activity and is declining production with plans to be FCF neutral, Goldman’s Umang Choudhary said.
The stock has lagged YTD due to a combination of its high free cash flow breakeven and less robust balance sheet vs. peers, and given Goldman’s less constructive view on near-term natural gas prices, Choudhary said he continues to see downside risks to consensus cash flow expectations in 2024 and greater risks to Southwestern (SWN) because of its weaker balance sheet, adding the company is 40% hedged on gas production next year at ~$3.50/MMBtu.
At the same time, Choudhary said Range Resources (RRC) has made significant progress towards balance sheet improvement, with low free cash flow breakeven and attractive gas hedges which limit downside risks in the near-term and merit the upgrade to Neutral.
Southwestern Energy (NYSE:SWN) -2.1% in Thursday’s trading as Goldman Sachs cut the stock to Sell from Neutral with a $5 price target, flipping its rating with Range Resources (NYSE:RRC), which the bank upgraded to Neutral from Sell with a $31 PT.
Southwestern’s (SWN) focus has been to keep production flat, generate free cash flow and reduce its net debt to $3B-$3.5B from ~$3.95B currently, but given this year’s difficult natural gas price environment, the company has cut activity and is declining production with plans to be FCF neutral, Goldman’s Umang Choudhary said.
The stock has lagged YTD due to a combination of its high free cash flow breakeven and less robust balance sheet vs. peers, and given Goldman’s less constructive view on near-term natural gas prices, Choudhary said he continues to see downside risks to consensus cash flow expectations in 2024 and greater risks to Southwestern (SWN) because of its weaker balance sheet, adding the company is 40% hedged on gas production next year at ~$3.50/MMBtu.
At the same time, Choudhary said Range Resources (RRC) has made significant progress towards balance sheet improvement, with low free cash flow breakeven and attractive gas hedges which limit downside risks in the near-term and merit the upgrade to Neutral.
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