Why Is Southwestern Energy (SWN) Up 14.3% Since Last Earnings Report?
A month has gone by since the last earnings report for Southwestern Energy (SWN). Shares have added about 14.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Southwestern Energy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Southwestern Beats Q4 Earnings & Revenues Estimates
Southwestern Energy Company reported fourth-quarter 2020 earnings of 18 cents per share, beating the Zacks Consensus Estimate of 14 cents. The bottom line was in line with the prior-year quarter’s level.
Quarterly operating revenues of $779 million beat the Zacks Consensus Estimate of $754 million and increased from $745 million in fourth-quarter 2019.
The better-than-expected quarterly results were supported by higher natural gas and natural gas liquids production, partially offset by lower average realized oil and gas prices.
Total Production
The company’s total fourth-quarter production increased to 257 billion cubic feet equivalent (Bcfe) from 208 Bcfe a year ago. Gas production in the quarter was 207 Bcf compared with the year-ago level of 160 Bcf.
Moreover, natural gas liquids production in the quarter under review was 7,001 thousand barrels (MBbls), higher than the year-ago level of 6,609 MBbls. However, oil production declined to 1,365 MBbls from 1,486 MBbls in the year-ago quarter. Notably, almost 80.5% of its volume mix constituted natural gas.
Average Realized Prices
The company’s average realized gas price in the quarter, excluding derivatives, fell to $1.67 per thousand cubic feet (Mcf) from $1.81 a year ago. Oil was sold at $31.97 per barrel compared with the year-earlier level of $46.37. Natural gas liquids were, however, sold at $15.28 per barrel, higher than $12.46 in the year-ago period.
Expenses
On a per-Mcfe basis, lease operating expenses were 92 cents compared with the prior-year level of 94 cents. Also, general and administrative expenses per unit of production were 11 cents versus 19 cents in the year-ago quarter.
Financials
Southwestern’s total capital investment during the fourth quarter was $194 million, lower than the year-ago quarter’s $207 million. Free cash flow in the quarter was $55 million.
As of Dec 31, 2020, the company’s cash and cash equivalents were $13 million, lower than the third quarter’s $95 million. Long-term debt was $3,150 million, higher than the third quarter’s $2,450 million. The figure represents a debt-to-capitalization of 86.4%.
Guidance
The company expects 2021 free cash flow of more than $275 million, assuming Henry Hub natural gas price at $2.77 per Mcf and WTI Crude price at $50 per barrel. The free cash flow will be used for reducing debt. However, the estimated figure is lower than the company’s previous projection of $300 million.
The company expects 2021 production to be in the range of 1,089-1,123 Bcfe, indicating a significant increase from 880 Bcfe in 2020. Full-year natural gas output is expected to be 873-898 Bcf. For the first quarter of 2021, total production is expected to be 265-272 Bcfe, consisting of natural gas of 211-216 Bcf.
Total capital investments in 2021 are estimated at $850-$925 million compared with $899 million in 2020. Of the total, Northeast and Southwest Appalachia will likely get $220-$240 million and $475-$500 million, respectively.
Lease operating expenses for 2021 are estimated to be 92-96 cents per Mcfe, the midpoint of which is higher than the 2020 reported figure of 93 cents.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 25.09% due to these changes.
VGM Scores
Currently, Southwestern Energy has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Southwestern Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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