We issued an updated research report on Comstock Resources, Inc. (CRK - Free Report) on Jun 4. The company’s major position in the prolific Haynesville/Bossier Shale play provides a highly visible and cost-effective production growth profile. However, the stock’s low liquidity and high leverage are matters of concern.
Comstock currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Shares of Comstock have gained more than 55% over the past year, easily outperforming the Zacks Oil & Gas U.S. E&P industry's 12.5% increase.
The company continues to deliver strong results under the Haynesville program. Production has increased substantially, while drilling costs have declined, resulting in improved margins.
In fact, based on the quality of its Haynesville/Bossier assets, Comstock expects natural gas production this year to average 250 million to 270 million cubic feet per day, reflecting a significant increase from 201 million cubic feet per day in 2017. Further, a 27% jump in proved reserves is set to support drilling activities this year.
Driven by its operational efficiencies, Comstock was able to reduce operating costs per thousand cubic feet equivalent (Mcfe) to 70 cents in first-quarter 2018, down from $1.48 in 2014 and $1.10 in 2016.
However, with natural gas prices trading below $3 per MMBtu and Comstock being one of the most gas-weighted upstream players, the company's earnings and revenues are expected to remain under pressure.
Moreover, we are worried about Comstock's high debt load. The company currently has $1.1 billion in long-term debt, rising 2% through first-quarter 2018. Moreover, with just $51 million in cash and cash equivalents, Comstock's liquidity position is weak.
Stocks to Consider
Prospective players in the energy space are Anadarko Petroleum Corp. (APC - Free Report) , Eclipse Resources Corp. (ECR - Free Report) and Wildhorse Resource Development Corp. (WRD - Free Report) . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
We expect Anadarko Petroleum to witness year-over-year earnings growth of 229.6% in 2018.
Eclipse is expected to record revenue growth of 13.5% through 2018.
Wildhorse will likely see year-over-year earnings growth of 309.3% in 2018.
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