Comstock Resources stock rating downgraded to Sell by UBS on valuation

Investing.com - UBS downgraded Comstock Resources (NYSE:CRK) from Neutral to Sell on Thursday, while raising its price target to $20.00 from $19.00. According to InvestingPro data, the stock currently trades at $22.68, with a concerning EV/EBITDA multiple of 13.3x.

The downgrade comes despite Comstock shares trading approximately 25% below their peak, as the stock remains more than 20% higher year-to-date and commands what UBS describes as a "large valuation premium." InvestingPro analysis reveals the company has delivered an impressive 119% return over the past year, though it currently appears overvalued based on Fair Value calculations.

UBS established its $20 price target based on a 6.25x multiple, which it believes appropriately balances Comstock’s Western Haynesville resource upside against low free cash flow, absence of capital returns, and higher debt levels.

The firm identified potential downside risks from declining natural gas strip prices, citing an approximately 0.5 Bcfpd oversupplied balance that creates elevated risk due to Comstock’s leverage position and low free cash flow generation.

UBS also highlighted execution risk specific to Comstock, noting that the Western Haynesville region, which represents the company’s primary growth driver, remains in the early stages of its development cycle.

In other recent news, Comstock Resources reported strong financial performance for the first quarter of 2025, surpassing earnings and revenue forecasts. The company achieved an earnings per share (EPS) of $0.18, exceeding the expected $0.14, and posted revenue of $512.8 million, well above the forecasted $417.96 million. Wolfe Research upgraded Comstock’s stock from Peerperform to Outperform, with a new price target of $34.00, citing the company’s strategic land acquisitions and resource expansion in the Western Haynesville region. Meanwhile, Mizuho (NYSE:MFG) maintained its Neutral rating on Comstock but raised its price target to $27.00, anticipating a modest earnings miss for the second quarter of 2025.

Comstock’s recent exploration success in the Western Haynesville area was highlighted by Wolfe Research, which noted the company’s efforts to prove the commercial viability of deeper targets. The company’s oil and gas sales increased by 21% year-over-year, and it generated $239 million in operating cash flow. Despite a 17% decrease in production compared to the previous year, Comstock maintained strong financial health. The company plans to continue its drilling activities in the Western Haynesville, with 20 wells scheduled for drilling and 15 wells to be turned to sales this year. Additionally, Comstock is focusing on developing its midstream assets to support growing production in the area.

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