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Southwestern Energy (SWN) Up 8.8% Since Earnings Report: Can It Continue?

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About a month has gone by since the last earnings report for Southwestern Energy Company (SWN - Free Report) . Shares have added about 8.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Second-Quarter 2017 Results

Southwestern Energy reported second-quarter 2017 adjusted earnings of $0.08 per share, which lagged the Zacks Consensus Estimate of $0.16. Last year, the company had incurred a loss of $0.09 per share.

Quarterly operating revenues of $811 million came below the Zacks Consensus Estimate of $818 million but increased substantially from $522 million in second-quarter 2016.  

The results improved due to higher realized natural gas and liquids prices as well as lower operating expenses, which were partially offset by lower production.
Production and Realized Prices

During the second quarter, the company’s total production declined 1.33% year over year to 222 billion cubic feet equivalent (Bcfe).

The company’s average realized gas price for the quarter, including hedges, rose to $2.15 per thousand cubic feet (Mcf) from $1.32 per Mcf in the year-ago period. Oil was sold at $40.56 per barrel compared with the year-earlier level of $32.46. Natural gas liquids were sold at $11.25 per barrel compared with $6.41 in the prior-year quarter.  

Segmental Highlights

Operating income from the Exploration and Production (E&P) segment was $146 million for the second quarter. The company reported operating loss of $549 million in the year-ago quarter. The increase was primarily driven by higher realized natural gas and liquids prices as well as lower operating costs. This was partially offset by reduced production volumes.

On a per-Mcfe basis, lease operating expenses were $0.89 compared with the prior-year quarter level of $0.87. General and administrative expenses per unit of production also increased to $0.23 from $0.21 recorded in the prior-year quarter.

Operating income for the company’s Midstream Services segment was $42 million in the second quarter compared with $57 million in the year-ago quarter. The decline in operating income largely stemmed from a decrease in volumes gathered due to lower production volumes in the Fayetteville Shale.

Capex and Debt

The company’s total capital expenditure during the first six months of 2017 was approximately $615 million. As of Jun 30, the company’s long-term debt was $4.4 billion, which represents a debt-to-capitalization ratio of 73.4%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in  fresh estimates. There have been three revisions higher for the current quarter compared to five lower. While looking back an additional 30 days, we can see even more downside. In the past month, the consensus estimate has shifted lower by 6.1% due to these changes.

VGM Scores

At this time, Southwestern Energy's stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of A on the value side, putting it in the top quintile 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.

Our style scores indicate that the stock is more suitable for value investors than growth investors.


Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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