Value, I saw the other day that Morningstar reiterated a $97 fair value estimate for RRC. I didn't see the Imperial report, but I assume it's about a 15 multiple of the forward enterprise value, EV/EBITDA, which is a rationale way to value the company and a good method for capturing debt and net cash. Unfortunately, the market must use other models.
Here's a good report out today:
In a report published Friday, Imperial Capital analyst Bob Christensen reiterated an Outperform rating on Range Resources Corp. and raised the price target from $86.00 to $91.00.
In the report, Imperial Capital noted, "We are maintaining our Outperform rating on RRC shares, and raising our one-year price target to $91 from $86. Our price target is about 79% above the recent share price. We remain positive on RRC even in a low 2015 commodity price environment of sub-$55/bbl oil (WTI) and sub- $3.00/Mcf natural gas (NYMEX)."
I suspect he was referring to the potential for natural gas demand when LNG exports start later this year, also should see a lot of coal plant retirements and exports to Mexico coupled with the declining rig count and the number of well completions being deferred. Clearly, the commodity price is challenging now, but the market should begin to turn ahead of any increase in commodity pricing. Just need to get less dependent on Appalchia pricing. Agree with you $2.70 gas is terrible with the cold weather coming to an end. Still a lot of positives for RRC-the Nora filed is really interesting where they get a premium to Nymex and may have other potential, the ethane and propane sales have good contract rates and 60% of natural gas hedged at $4, and factor in effective hedges from the benefit declining service costs their ability to drill wells $850K cheaper. all in all estimates of a 37% reduction in well cost per lateral foot. So the commodity pricing is challenging, but few companies are as prepared as RRC to deal with it.
Yogue, RRC had a great year in all aspects, just too bad the commodity prices are not cooperating. RRC is situated, perhaps, better than any other E&P, to deal with the low prices. It's a game with the analysts, they will now reduce the price target due to the low prices, rather than focus on the asset value and the future demand. Find another company that can cut capex in half, still grow 20%,and remain on the brink of investment grade. One analyst, from Sun Humphrey downgraded RRC yesterday before the earnings were even released-how does that happen. The asset value of RRC has only increased when they grow with such minimal capex, but until the commodity prices rebound we'll probably be locked in a price range (unless some smart company writes a big check).
Yogue, I don't know any other E&P that can cut capex 47%, still grow production 20%, and virtually stay within cash flow. Demonstrates the quality of the assets (and employees) of RRC. Eventually, some of these analyst's will figure it out.
Agreed, thought the call was very positive. Now the FCPA is behind them seems they are actively marketing the Angola assets for a JV or perhaps more. Also reworking plans on Cameia will apparently save billions in the future, and they will benefit from reduced service costs (although I don't think those prices will be down as long as many think). Investors should now start to focus on the value of the assets they have accumulated. I suspect you added shares at the bottom.
All good points, but after listening to the conference call I don't see anything that will change HUN in the near term or perhaps through 2015. Seems they will have to rely on cost cutting and some low feed stock pricing to achieve goals, which are more than offset by other issues TIo2 pricing, competition from Germany and China on polys, the dollar and European weakness. I've been a shareholder for a long time, usually don't comment here about HUN, but this is the least optimistic I've been about this company in a long time. I expect we start to see a lot of downgrades as there really is no catalyst to turn this near time. I think its well managed and a turn around situation in the longer term, but the share price will remain in the low 20"s for awhile.
Concerning Q4 Loss-clearly a negative quarter with near term prospects weak. Big loss ($ 7 million ) from the Euro currency, the Euro is causing weak pricing for TI02, plant closing for renovation will cost $60 million, positives seem to be from reduced benzene costs and cost cutting and epoxy business doing well with airline mfg but nor really enough for significant overall growth. They seem to think they can get a TI02 price increase, hopefully it works. Well managed company, overall 2014 was pretty good, but until TI02 changes shares will be negative to flat at best, hopefully, this will change by mid year. Company doing as well as can be done in tough environment.
Chrxind, all good points. I wasn't equating the recent 13G activity to M&A activity, was basing thoughts on unrelated banking information. Agree with you on CNBC always a source for questionable info- any gasoline savings are going for health care and tax increases for the few of us left who pay any. Only the CNBC economist can view losses of high paying emery jobs as a positive. Six years without real improvement, but they really try and spin it. Most of their anchors are spokespeople for the failed administrative otherwise there is no way jarret would appear on their network Just tune them out Hope we get that V pattern soon.
Value, Looked at some of the recent fund filings and noted several reflected substantial additional RRC purchases taking advantage of the excessive price decline. Looks like we're going to see some M&A activity in the near future, so it will be interesting to see if it will be acquisitions of distressed companies as a result of the price declines, or perhaps others looking to take advantage of companies selling at significant discounts to their asset values. Winter has not been cold enough to tap into natural gas storage as latest draw numbers have been disappointing, but oil is rebounding, dollar seems to be weakening and we'll definitely see demand increases as we get into 2016 and going forward. My guess-,many will be happy they picked up some RRC shares at these levels.
Interesting discussion, if RRC doesn't get some attention this year then I don't think it would happen going forward which is fine. Not as dire on pricing as you are-see second half demand increase and $4 mcf in Q4. The exec sales you mentioned were small and deferred comp related. The only potential merger that would interest me would be Cabot. NBL and APA would be good acquirers, note that the largest NBL shareholder at one time was the former Lomak/RRC CEO. Was surprised by the dip in nat gas yesterday with the large draw.
Hey Value, I recall reading some transcripts where RRC executives stated they will sell for the right price, the company does not have any anti takeover provisions and two institutions own 26% of the shares. I agree these institutional owners must be frustrated, as well as their investors, So are individual holders and RRC execs-makes potential take over more likely. I prefer it as a stand alone company, but now thinking take over potential real with this ridiculous share price. I thought it was cheap before the slide. Also have some of those $1 shares, and now our Chief Executive would like to tax those given to heirs. Seems we just got caught in an ugly cycle, not sure why it trades like oil. but today's foreign decision on QE policy made it more difficult for the sector. The RRC assets, especially acreage values are multiples of the share price, and some cash heavy company, can pull that value forward big time, when prices increase. Be an interesting year.
Yogue, We'll see a demand increase in the future. However, with the current stock price i.e. $8 billion market cap and $11 billion enterprise significantly below the value of RRC assets. I would be surprised if RRC does not get acquired before the demand situation changes. The best pure play in the Marcellus with stacked pays now significantly undervalued on an asset basis - imo its just a matter of time before it happens. A 50% slide in the stock price on RRC, its just too cheap and really a no brainer for a smart acquirer. You've been a shareholder as long as I have-have you ever seen the share price so low with proved reserves that do not include 400,000 plus Utica shale acres worth significantly more than the share price, the economies of scale from drilling its stacked pay locations, and the future cash flows from propane and ethane, all at a time when there is less drilling risk than at any time in the company history. I just don't see RRC being a stand alone company much longer, someone is going to take advantage of their 10 year Marcellus development-it is just what happens when the market over reacts to a commodity price decline.
Noted that Tudor Pickering made a significant change to natural gas forecast today forecasting sustained $4 gas by late 2015 rather than prior view of 2019. Meanwhile we should get some big storage withdrawals the next few weeks, but have to work through a weak first half 2015 for pricing.
Hang in there Cody, overall market down big even with nat gas up more than 8% today, we should see some good draws from storage. A lot of short positions in the E&P's will reverse as prices rebound, RRC is not as impacted by the oil decline and don't forget 77% of oil hedged over $90. Last time I looked crude was only 4% of proved reserves for RRC. Sell off for RRC way overdone.
Added shares today, had not done so for a long time, just too much value here if you can get past the energy selloff, negativity and talking heads on cnbc. Recent deals for unproven acreage is at least $7,000/acre-thus giving no value for proved acreage equates to $80 share for the 1.9 million equivalent Marcellus acreage. Doubling this acreage value would still be conservative and you still have to add in the other RRC plays. Still growing at 20-25% with unit costs continuing to decline, and you can now add in the Utica opportunity, the significant increase expected for proved reserves, the cash flow from ethane and propane where they have good contracts, solid hedge position- 55% of gas hedged at $4.13 and 75% of oil at $90, the capital savings where they drill in existing infrastructure areas and expected demand increases going forward- RRC also being one of the lowest cost producers. Was not surprised to see a significant sell off with the commodity declines-but there should not be such a disparity for this nat gas producer.
Not a fan of bust or immelt either, just too close to anti energy administration. Still don't understand lack of m&a activity in marcellus and utica with this decline, although some recent land deals. Most of RRC shares held by large institutions and they would sell for the right price. Tough environment now but RRC well hedged, low cost producer and will get a decent cash flow uplift from the propane and ethane sales. Should have some good draws the next few weeks.
Agreed and it doesn't have to be an oil giant acquirer, for the large oil companies, outside the gulf, there have not been signicant discovery of new large reserves. Then when you add in the international issues, the ability to discover new reserves and the costs it just seems like a no brainer to try and pick up huge domestic reserves with decades of growth. Exxon may have been early and paid a lot for xto, and they have their own timetable, but what better use for cash then companies like RRC and COG growing at 25% with the best acreage in the best gas field. Like I said I would like to see some companies with a lot of cash like Berkshire unload those stale companies like coke and ibm and move into this growth area. Also think it would be a good fit for GE. As we get through this weather demand period and get pipeline expansion these guys will have missed their opportunity. Always preferred RRC as a stand alone but surprised that we have not seen big deals in domestic nat gas area.