On Wednesday, Barclays initiated coverage on Range Resources Corp . (NYSE: NYSE:RRC), assigning an Underweight rating to the stock, along with a price target of $35.00. The firm cited the company's valuation as being relatively high compared to its peers in the natural gas sector and noted that its hedging strategy could reduce the benefits it might receive from a potential recovery in gas prices.
Range Resources has seen a significant improvement in its financial health since 2020, having paid off $1.3 billion in absolute debt and repurchased approximately $420 million worth of stock over the past three years. The company has also managed to reduce the capital intensity of its asset base, maintaining steady production levels and lowering the decline rate of its wells.
According to Barclays, Range Resources possesses the longest inventory duration in the gas exploration and production (E&P) sector, which could allow it to sustain its current operations for many years, potentially outlasting smaller competitors.
Despite these positive developments, Range Resources' stock performance has significantly outpaced that of its peers and the gas strip prices. Since the end of 2022, the company's shares have exceeded the 2026 NYMEX gas strip price by more than 34%.
Currently, Range Resources is trading at multiples of 8.5 times and 6.7 times its estimated 2024 and 2025 enterprise value to EBITDA (EV/EBITDX), respectively. Without the hedging benefits, these multiples rise to 13.2 times and 7.6 times.
Barclays highlighted that Range Resources' cash breakeven price is average compared to its peers, and its valuation appears expensive. Additionally, the company's substantial gas hedge book could limit its cash flow sensitivity to any potential uptick in gas prices. The firm's price target of $35.00 for Range Resources is based on a blended target multiple of 6.5 times the projected 2025 EV/EBITDX and 1 times the net asset value (NAV).
InvestingPro Insights
In light of the recent initiation of coverage by Barclays on Range Resources Corp. (NYSE: RRC), it's valuable to consider some additional metrics and insights. According to InvestingPro data, Range Resources has a market capitalization of approximately $8.78 billion and trades with a P/E ratio of 10.02, indicating a potentially attractive valuation for investors. However, the adjusted P/E ratio for the last twelve months as of Q4 2023 is slightly lower at 9.33, which could suggest a more favorable earnings perspective than initially apparent.
InvestingPro Tips highlight that analysts have recently revised their earnings expectations downwards for the upcoming period, which may warrant attention for potential investors. In addition, the stock has been performing well, trading near its 52-week high and showing a strong return over the last three months, with a price total return of 17.75%. This aligns with the article's note of the stock's significant outperformance compared to its peers and gas strip prices. Moreover, Range Resources' current price is hovering close to the fair value estimates, with InvestingPro's fair value at $34.68, which is slightly below the current price of $35.85.
For readers interested in a deeper dive, there are additional InvestingPro Tips available on https://www.investing.com/pro/RRC. These could provide further insights into the company's performance and market position. To enhance your investment research, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. With several more tips available, investors can gain a comprehensive understanding of Range Resources' potential risks and opportunities.
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