Source : investing, 28 October 2024, Monday
On Monday, BofA Securities began covering shares of Comstock Resources (NYSE:CRK), a natural gas exploration and production company focused on the Haynesville area.The company issued a purchase recommendation for the company’s shares, accompanied by a target price of $14.00.
The analyst at BofA Securities highlighted Comstock Resources as a small to medium-sized company (SMID cap) with high leverage for natural gas, with debt accounting for 45% of the company’s value (EV). Despite this leverage, the company’s debt has long-term maturities, not maturing until 2029 and 2030.
Comstock Resources’ hedging book is relatively open with only 37% and 34% hedging of its production in 2025 and 2026 respectively. This situation allows the company to benefit from potential gas price increases, while a minimum of $3.50 per thousand cubic feet (MCF) protects its capital program from price declines.
The analyst confirmed that Comstock Resources’ operating leverage towards rising gas prices and an expected CAGR in production in the middle of the single-digit range could significantly enhance the company’s free cash flow return. It is expected to rise from 1.7% in 2025 to 11.8% by 2030
The purchase recommendation and target price of $14 reflect BofA Securities’ positive outlook for Comstock Resources’ future performance, taking into account the company’s financial structure, hedging strategy, and growth potential in a favorable gas price environment..
In other recent news, Comstock Resources reported mixed earnings for the second quarter, with an adjusted net loss of $0.20 per share due to lower-than-expected gas volumes, despite a modest 4% year-on-year increase in production.
KeyBanc maintained Comstock’s Sector Weight rating, citing concerns about the company’s high leverage ratio and weak natural gas prices, while acknowledging promising results from wells in the Western Haynesville area. Piper Sandler downgraded Comstock’s rating from neutral to underweight mainly due to lower long-term natural gas price assumptions.
In other recent developments, major shareholder Jerry Jones increased his investment in Comstock, buying an additional $6.1 million worth of shares. The company also introduced production guidance for the third quarter of 2024, while keeping its guidance for the whole of 2024 steady despite the challenges. These latest developments highlight Comstock’s efforts to navigate the challenging natural gas market and set itself up for potential future growth.
Roth/MKM maintained a neutral rating and a target share price of $10.00 for the company, citing concerns such as significant exposure to natural gas price risk and higher leverage compared to peers.
The company predicts that Comstock Resources will be one of the few exploration and production companies that will spend more than its cash flow in both 2024 and 2025. Despite these challenges, Comstock continues to advance its operations at Western Haynesville, with plans to operate new wells during the fourth quarter of 2024.
Piper Sandler lowered its target price for the stock to $5.00, down from the previous $8.00, mainly due to a lower long-term natural gas price assumption. The company also lowered its estimate of capital expenditure for fiscal 2025 to about $700 million, resulting in an expected 9% decline in production forecasts for 2025.
Despite this, Comstock provided production guidance for the third quarter of 2024 averaging 1.45 billion cubic feet equivalent per day, while keeping its guidance for the whole of 2024 consistent.
Finally, Comstock Resources has been the subject of several recent developments, including an adjusted net loss of $0.20 per share for the second quarter due to lower-than-expected gas volumes. Despite these challenges, the company remains optimistic about the outlook, citing a strong management team and liquidity.
While BofA Securities began covering Comstock Resources (NYSE:CRK) with a buy recommendation, InvestingPro’s recent data and advice provide additional context for investors to consider. The company has a market capitalization of $3.51 billion, with a remarkable dividend yield of 4.17% according to the latest data. These distributions may be attractive to income-focused investors, in line with the potential for increased cash flow. The free of the company mentioned in the analyst’s report.
However, InvestingPro’s advice warns that Comstock Resources operates with a large debt burden and burns cash quickly. This is consistent with BofA Securities’ analysis that mentions the company’s high position, with debt accounting for 45% of the company’s value. A company’s price-to-book value ratio of 1.51 indicates a moderate valuation relative to its book value.
Comstock Resources has shown a strong price performance recently, with a total return of 15.38% over the past three months. This positive momentum may be related to the optimistic outlook for natural gas prices and the company’s open hedging position mentioned in the article.
