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Southwestern Energy (SWN) Up 10.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Southwestern Energy (SWN - Free Report) . Shares have added about 10.9% 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 drivers.

Southwestern Energy Company reported fourth-quarter 2018 adjusted earnings of 31 cents per share, which failed to beat the Zacks Consensus Estimate of 34 cents owing to lower production volumes from Fayetteville Shale. The bottom line, however, increased from the year-earlier figure of 12 cents, thanks to higher natural gas and oil prices realizations.  

Quarterly operating revenues of $1,175 million beat the Zacks Consensus Estimate of $1,001 million and also improved from $809 million in fourth-quarter 2017.

Production and Realized Prices

During the fourth quarter, the company’s total production fell 2.1% year over year to 234 billion cubic feet equivalent (Bcfe) — comprising almost 83% natural gas. This was owing to lower contributions from the Fayetteville Shale.

However, the company recorded liquids production of 6,507 thousand barrels (MBbls), representing a year-over-year increase of 38.7%. Of the total liquid production, oil accounted for 1,073 MBbls and the remaining was NGLs.

The company’s average realized gas price in the quarter, including hedges, increased to $2.48 per thousand cubic feet (Mcf) from $2.12 per Mcf in the year-ago quarter. Oil was sold at $50.37 per barrel compared with the year-earlier level of $48.05. Natural gas liquids were sold at $18.49 per barrel compared with $17.99 in the prior-year quarter.

Segmental Highlights

Operating income at the Exploration and Production (E&P) segment increased from $114 million in the year-ago quarter to $284 million in the December quarter of 2018. The upside was led by higher natural gas and oil realized prices.

On a per-Mcfe basis, lease operating expenses were 93 cents compared with the prior-year level of 91 cents. General and administrative expenses per unit of production declined to 18 cents from 23 cents in the prior-year quarter.

Operating income at the company’s Midstream Services segment was $68 million, up from $54 million in the year-ago quarter, thanks to almost a 46% decline in operating expenses.

Share Repurchase

In the fourth quarter of 2018, Southwestern spent $156 million and bought back 34 million shares. As of Feb 28, 2019, the company repurchased $199 million worth of shares, in accordance with the $200-million repurchase program that was authorized. This reflects the company’s commitment of returning cash to stockholders.

Capital Expenditure

Total capital expenditure in the reported quarter was $209 million. The company’s total capital expenditure through 2018 was $1,248 million.

Balance Sheet

As of Dec 31, 2018, the company had $201 million in cash and cash equivalents. Southwestern’s long-term debt was $2.3 billion, which represents a debt-to-capitalization ratio of 49.5%.

Proved Reserves Decline

As of Dec 31, 2018, Southwestern reported proved reserves at 11.9 trillion cubic feet equivalent (Tcfe), lower than 14.8 Tcfe as of Dec 31, 2017.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Southwestern Energy has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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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