Despite the spread of the omicron variant and consequent restrictions, the United States Energy Information Administration (EIA) reported that demand for petroleum products jumped 9% week-over-week in the run-up to the Christmas holiday weekend.

On top of that, the Weather Prediction Center forecasted freezing temperatures, heavy snowfall, and strong winds in parts of the country in early January, which is expected to affect natural gas production amid the rising demand. U.S. January futures for natural gas contracts gained 8.8% on Wednesday, marking the steepest intra-day rise since October. Moreover, U.S gas prices are expected to surge to $3.41 per gallon on average in 2022 and peak at almost $3.80 per gallon.

Given this scenario, Wall Street analysts expect a more than 40% upside in the natural gas stocks of Chesapeake Energy Corporation (CHK), Range Resources Corporation (RRC), and Tellurian Inc. (TELL)

Chesapeake Energy Corporation (CHK)

CHK acquires, explores, and develops properties for the production of oil, natural gas, and natural gas liquids (NGLs) from underground reservoirs in the United States. The company went public, after a financial restructuring process, on February 10, 2021.

On December 2, CHK announced the repurchase of $1 billion in an aggregate value of its common stock and warrants. This should improve shareholder returns.

On November 1, the company announced that it had completed the acquisition of Vine Energy Inc. (VEI). About this acquisition, Nick Dell’Osso, CHK President and Chief Executive Officer, said, “We are pleased to integrate the outstanding Vine operations and assets into our portfolio, strengthening our position in the Haynesville Shale with over 900 additional drilling locations, immediately improving our free cash flow profile and accelerating a significant return of capital to our shareholders at a time of favorable natural gas prices.”

For the fiscal third quarter ended September 30, CHK’s adjusted net income attributable to common stockholders increased 427.5% year-over-year to $269 million. Net cash provided by operating activities improved 16% from the prior-year quarter to $443 million. The company’s cash, cash equivalent, and restricted cash balance rose 180.4% from the same period last year to $858 million.

The consensus EPS estimate of $9.99 for the next year (fiscal 2022) indicates a 2.8% year-over-year increase. Likewise, the consensus revenue estimate for the upcoming year of $6.42 billion reflects a rise of 28% from the current year.

The stock has gained 45.7% since it went public on February 10 to close yesterday’s trading session at $65.57. It has gained 6.8% over the past month.

The 12-month median price target of $92.29 indicates a 40.8% potential upside. The price targets range from a low of $78.00 to a high of $115.00.

Range Resources Corporation (RRC)

RRC is an independent oil and natural gas company, NGLs, and oil company operating in the United States. The company explores, acquires, and develops natural gas and oil properties.

On November 3, RRC published its Corporate Sustainability Report. The company hopes to enhance its record of proactive and transparency. NGL is on track to achieve its net-zero GHG emissions target by 2025.

For the fiscal third quarter ended September 30, RRC’s non-GAAP total revenues increased 56% year-over-year to $795.41 million. Non-GAAP net income and non-GAAP income per common share came in at $130.22 million and $0.52, respectively, up substantially from their negative year-ago values.

The consensus EPS estimate of $1.06 for the current quarter (ending December 2021) indicates a 5,200% year-over-year increase. Likewise, the consensus revenue estimate for the ongoing quarter of $932.56 million reflects an improvement of 109.7% from the prior-year quarter.

The stock has gained 204.7% over the past year and 183.7% year-to-date to close yesterday’s trading session at $19.01.

The 12-month median price target of $27.73 indicates a 45.9% potential upside. The price targets range from a low of $22.00 to a high of $33.00.

Tellurian Inc. (TELL)

TELL is a natural gas company focused mainly on developing liquefied natural gas (LNG) production on the United States Gulf Coast and engages in building up infrastructure assets.

On November 10, TELL announced the closing of its previously declared public offering of $50 million aggregate amount of its 8.25% Senior Notes due 2028. The company plans to use the proceeds for financing general corporate purposes and the potential accumulation of upstream assets.

TELL, on October 22, announced that the company would transfer its listing of common stocks from the Nasdaq Capital Market to NYSE American. The company expects to leverage the exchange’s prestigious platform for benefitting its shareholders.

For the third fiscal quarter ended September 30, TELL’s total revenue increased 9.6% year-over-year to $15.64 million. For the nine months ended September 30, net cash provided by financing activities rose 175.1% from the prior-year quarter to $192.66 million, while the company’s cash and cash equivalents balance came in at $210.81 million, up 159% from the same period last year.

The consensus revenue estimate of $19.15 million for the current quarter (ending December 2021) indicates an increase of 122.1% from the prior-year quarter.

TELL’s stock has gained 139.5% over the past year to close yesterday’s trading session at $3.09. It has gained 141.4% year-to-date.

The 12-month median price target of $7.00 indicates a 126.5% potential upside.

CHK shares were trading at $64.80 per share on Thursday afternoon, down $0.77 (-1.17%). Year-to-date, CHK has gained 50.11%, versus a 29.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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