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Bear of the Day: Comstock Resources (CRK)

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Comstock Resources, Inc. (CRK - Free Report) was supposed to be flying high in 2023 on higher natural gas prices. Instead, earnings are expected to fall 73.7% year-over-year and it's a Zacks Rank #5 (Strong Sell) as natural gas prices have plunged.

Comstock Resources is a leading independent natural gas producer with operations focused on the development of the Haynesville Shale in North Louisiana and East Texas.

2022 Looked Good

In 2022, with natural gas prices soaring, Comstock generated free cash flow from operations of $673 million, including $129 million in the fourth quarter.

Oil and gas sales, including realized hedged losses, jumped 58% in 2022 to $2.3 billion.

Comstock also retired $506 million of debt and conversion of preferred stock.

Everything was looking so good, that Comstock resumed its quarterly dividend, which is now $0.125 per share, or $0.50 annually, and is yielding 5.2%.

Earnings Estimates Slashed for 2023

But as natural gas prices have fallen to multi-year lows, the analysts have turned bearish. Earnings estimates have been cut several times this year.

The 2023 Zacks Consensus Estimate has now fallen to $0.98 from $2.28 in the last 90 days, with 2 analysts cutting in the last 30 days, although one also raised in that time. That's a 73.7% decline from last year when Comstock made $3.73.

Here's what it looks like on the chart. You can see the earnings estimates round tripping from last year.

Zacks Investment Research
Image Source: Zacks Investment Research

A Buying Opportunity?

Shares of Comstock are down 30.3% year-to-date. It's cheap, even with falling earnings. It trades with a forward P/E of 9.9.

But until natural gas prices rebound, most investors will probably stay away from the natural gas stocks. Energy stocks are still hated. That presents a buying opportunity for those who believe that natural gas will soon bottom.

Remember, the Zacks Rank is a short term recommendation of 1 to 3 months. When natural gas finally turns around, the estimates likely will too.

Investors interested in playing the rebound in natural gas should probably keep Comstock on their watch list.

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