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A Look at Changes in Southwestern Energy’s Risk Factors

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Southwestern Energy (SWN) is an American natural gas producer based in Texas. Its returns-driven strategy seeks to create sustainable value for investors while responsibly developing energy assets.

Let’s take a look at the company’s latest financial performance, corporate updates, and changes in risk factors. (See Southwestern Energy stock charts on TipRanks).

Q2 Financial Results

Southwestern Energy reported revenue of $1.05 billion for Q2 2021. That increased from $410 million in the same quarter last year and beat the consensus estimate of $843.43 million. Adjusted EPS of $0.19 missed consensus estimates of $0.21.

Corporate Updates

Southwestern Energy has completed the acquisition of Indigo Natural Resources, which operates in the Haynesville Shale and ranks as the third-largest private natural gas production company in the U.S. It purchased Indigo for $2.7 billion in a transaction that involved cash, stock, and the assumption of debt.

“This acquisition materially expands our opportunity set, adding high-margin Haynesville production and substantial core drilling inventory while providing additional global market access through the LNG corridor,” commented Southwestern Energy CEO Bill Way.

Following the closing of the Indigo acquisition, Southwestern Energy raised the estimate of the free cash flow it expects to generate in 2021 to a range of $425 million - $475 million. The company intends to use the increase in cash flow to reduce its debt.

Separately, Southwestern Energy has increased the cash tender offer for its 2025 notes to $167 million from $25 million. The company expanded the tender offer after issuing $1.2 billion in senior notes due in 2030. It said it would use the proceeds to fund the tender offer.

Risk Factors

The new TipRanks Risk Factors tool now shows 52 risk factors for Southwestern Energy, compared to 33 previously. Since Q4 2020, the company has updated its risk profile with 19 new risk factors, all related to the Indigo merger.

Southwestern Energy tells investors that it may record goodwill in connection with the Indigo acquisition. It warns that goodwill may be impaired in the future, which could have a significant impact on its results.

The company says that the size of its business will increase following the Indigo acquisition. Additionally, it tells investors that the acquisition will increase its exposure to commodity price volatility risk. Therefore, the company cautions that its results may suffer if it is unable to effectively manage the expanded operations.

Southwestern Energy warns that following the acquisition of Indigo, it will be limited in its ability to use loss carryforwards to reduce its future tax liabilities.

The majority of Southwestern Energy’s risk factors fall under the Finance and Corporate category, with 50% of the total risks. That is above the sector average of 37%. Southwestern Energy’s shares have gained about 88% since the beginning of 2021.

Analysts’ Take

In September, Bank of America Securities analyst Doug Leggate reiterated a Buy rating on Southwestern Energy stock and raised the price target to $4.50 from $4.00. Leggate’s new price target suggests 19.50% downside potential.

Consensus among analysts is a Hold based on 4 Buys, 4 Holds, and 2 Sells. The average Southwestern Energy price target of $6.33 implies 13.24% upside potential to current levels.

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