Though natural gas prices dipped in the past few days, it has surged substantially this year, with demand outpacing supply. Last week, U.S. natural gas futures registered the best performance in about two months, surging more than 7% intraday on November 26th, while gas futures for December delivery rose 7.5% to $5.447 per million British thermal units (mmBtu).

According to Energy Secretary Jennifer Granholm, heating bills this winter are expected to increase significantly. Consumers relying on natural gas for heating their homes could spend up to 30% more this winter compared to last year. On the other hand, a warmer than usual winter temperature anticipation has led U.S. gas futures to fall on Tuesday. However, the substance is still up 80% this year and set to post its best year since 2005.

Therefore, natural gas stocks Range Resources Corporation (RRC) and Southwestern Energy Company (SWN) might be solid buys, given their strong fundamentals.

Range Resources Corporation (RRC)

RRC is an independent oil and natural gas company, natural gas liquids (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 transparent initiatives. This is aligned with the company’s sustainability goals.

For the fiscal third quarter ended September 30, RRC’s non-GAAP total revenues increased 56% year-over-year to $795.41 million. This can be attributed to a rise of 122.6% from the prior-year quarter to $849.31 million in natural gas, NGLs, and oil sales. Net cash provided from operating activities came in at $191.85 million, up substantially from its negative year-ago value.

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 168% over the past year and 191.9% year-to-date to close yesterday’s trading session at $19.56.

The 12-month median price target of $27.21 indicates a 39.1% potential upside. The price targets range from a low of $20.00 to a high of $33.00.

Southwestern Energy Company (SWN)

SWN functions as an independent energy company that explores, develops, and produces natural gas, oil, and NGLs, and operates under the broad segments of Exploration and Production; and Marketing.

On November 29, SWN announced the implementation of additional gas derivatives for repayment of borrowing, taken to finance its pending acquisition of energy company, GEP Haynesville, LLC. The hedge positions are expected to provide the company with additional cash flow and reduce its debt. SWN had previously announced the acquisition at a price of approximately $1.85 billion. This acquisition should add to the company’s productive capability and expand its reach to access the Gulf Coast markets.

SWN’s adjusted net income increased 300% year-over-year to $188 million in the fiscal third quarter ended September 30. Adjusted EPS improved 200% from the prior-year quarter to $0.24. Its adjusted EBITDA rose 176.6% from the same period last year to $426 million.

Analysts expect SWN’s EPS to increase 77.8% year-over-year to $0.32 in the ongoing quarter (ending December 2021). Likewise, Street revenue estimate of $1.37 billion for the current quarter indicates an improvement of 75.7% from the same period last year. Moreover, SWN has an impressive surprise earnings history as it has topped consensus EPS estimates in three out of the trailing four quarters.

Over the past year, SWN has gained 44.1% to close yesterday’s trading session at $4.48. It has gained 50.3% year-to-date.

The 12-month median price target of $6.79 indicates a 51.6% potential upside. The price targets range from a low of $5.00 to a high of $10.00.

RRC shares were trading at $18.33 per share on Wednesday afternoon, down $1.23 (-6.29%). Year-to-date, RRC has gained 173.58%, versus a 23.65% 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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