800-742-7730     This email address is being protected from spambots. You need JavaScript enabled to view it.     Offices     News     Family of Companies

NHLD logo
NAM Logo
NationalInsurance Logo
vfin logo
GC logo

Southwestern Energy, Inc - Initiation Note

Southwestern Energy, Inc

NEUTRAL (SWN, $12.10)

Marcellus Gas Producer Working Through Tough Environment; Fairly Priced For Now.

April 26, 2016

Glenn Williams Jr.

212.417.3638

This email address is being protected from spambots. You need JavaScript enabled to view it.


We are initiating coverage on Southwestern Energy with a NEUTRAL rating and $13 price target. Despite a strong base of natural gas reserves in Fayettville (Arkansas) and the Marcellus shale (Pennsylvania & West Virginia), we contend that Southwestern is fairly valued at current levels, given the current as well as future outlook for natural gas prices. We value SWN’s equity on the basis of daily production along with its base of proved reserves. In doing so, we arrive at a value of $13 per share, implying 8% of additional upside, given today’s prices.

We think that the worst is over for Southwestern, though we expect a slow road back. We note that Southwestern trades at $12.10 per share, versus prices of $26 per share a year prior (55% decline). As has been the case across the industry, the sharp contraction in natural gas prices, has dragged on every facet of company operations and value. On a fundamental basis, SWN is attacking 2016, by reducing spending more than 70% while reducing its workforce by 40%. On a technical basis, we note a 28% uptick in short interest from year end 2015 that we think may be late to the party (Exhibit 10). While not part of our valuation, we contend that the increased short interest will translate to an increase in shares that will need to be purchased, should prices move higher. However, in looking at our valuation methodology, we see SWN as fairly priced right now, when valuing on the basis of production and proved reserves. We also note that SWN outperforms a number of its Marcellus based peers on the aforementioned metrics as well. Ultimately however, our expectations for realized prices (and resulting cash flows), prevent us from rating SWN a BUY at this point (given our 12 month price horizon).

Again, we base our price target on a blended average of Southwestern’s daily production and base of proved reserves. In doing so, we arrive at a price target of $13 per share (Exhibit 9). Additionally, our model adds $3.68 for a working capital surplus, while deducting $14.46 per share for net debt. Thus, given the 8% implied upside to current prices, we initiate coverage on Southwestern with a NEUTRAL rating.

SWNSource: Capital IQ; National Securities Corporation


Request Document


Important Disclosures

This publication does not constitute and should not be construed as an offer or the solicitation of any transaction to buy or sell any securities or any instruments or any derivatives of the securities mentioned herein, or to participate in any particular trading strategies. Although the information contained herein has been obtained from recognized services, and sources believed to be reliable, its accuracy or completeness cannot be guaranteed. Opinions, estimates or projections expressed in this report may make assumptions regarding economic, industry, company and political considerations, and constitute current opinions, at the time of issuance, which are subject to change without notice.

This report is being furnished for informational purposes only, and on the condition that it will not form a primary basis for any investment decision. Any recommendation(s) contained in this report is/are not intended to be, nor should it / they construed or inferred to be, investment advice, as such investments may not be suitable for all investors. When preparing this report, no consideration to one’s investment objectives, risk tolerance and other individual factors was given; as such, as with all investments, purchase or sale of any securities mentioned herein may not be suitable for all investors. By virtue of this publication, neither the Firm nor any of its employees shall be responsible for any investment decisions. Before committing funds to ANY investment, an investor should seek professional advice. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice, or to be used by anyone to provide tax advice. Investors are urged to consult an independent tax professional for advice concerning their particular circumstances. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, either expressed or implied, is made regarding future performance.

National Securities Corporation (NSC) and its affiliated companies, shareholders, officers, directors and / or employees (including persons involved with the preparation or issuance of this report) may, from time to time, have long or short positions in, and buy or sell the securities or derivatives (including options) thereof, of the companies mentioned herein. One or more directors, officers, and / or employees of NSC and its affiliated companies, or independent contractors affiliated with NSC may be a director of the issuer of the securities mentioned herein. NSC and / or its affiliated companies may have managed or co-managed a public offering of, or acted as initial purchaser or placement agent for a private placement of any of the securities of any issuer mentioned in this report within the last three (3) years, or may, from time to time, perform investment banking or other services for, or solicit investment banking business from any company mentioned in this report.

This research may be distributed by affiliated entities of National Securities Corporation (NSC). Affiliated entities of NSC may include, but are not limited to, vFinance Investments, Inc., National Asset Management and other subsidiaries of our parent company, National Holdings Corporation.

The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and the income they produce if any, may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors. Furthermore, NSC may follow emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. This report does not take into account the particular investment objectives, financial situation or needs of individual investors. Before acting on any advice or recommendation in this material, the investor should exercise independent judgment as to whether it is suitable in light of his/her particular circumstances and, if necessary, seek professional advice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance.

Additional information relative to securities, other financial products, or issuers discussed in this report is available upon request. Neither this entire report, nor any part thereof, may be reproduced, copied or duplicated in any form or by any means without the prior written consent of National Securities Corporation. All rights reserved. NSC is a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investors Protection Corporation (SIPC).

For disclosures inquiries, please call us at 1-800-417-8000 and ask for your NSC representative, or write us at National Securities Corporation, Attn. Supervision Department, 410 Park Avenue, 14th Floor, New York, NY 10022, or visit our website at www.nationalsecurities.com

NHLD logo
NAM Logo
NationalInsurance Logo
vfin logo
GC logo

Newsletter Sign Up

News letter