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On Tuesday, CFRA announced a revision of the price target on Southwestern Energy (NYSE: NYSE:SWN), lowering it to $6.50 from the previous $7.50. The firm has maintained its Hold rating on the stock. The adjustment reflects the terms of Southwestern Energy's impending acquisition by Chesapeake Energy (NYSE:CHK 72 NR). The new target is based on a 4.0x multiple of the company's enterprise value to its projected 2025 EBITDA, which is slightly above Southwestern's historical forward average.
The analyst at CFRA also raised the earnings per share (EPS) estimates for Southwestern Energy. The 2024 EPS estimate increased by $0.08 to $0.65, and the 2025 estimate went up by $0.06 to $1.20. This update follows the company's second-quarter EPS of $0.10, which aligned with the consensus view.
The Federal Trade Commission (FTC) has requested additional information regarding the merger between Southwestern Energy and Chesapeake Energy. The analyst noted the current market dynamics, where Southwestern Energy produces 3.56 billion cubic feet per day (bcf/d), accounting for 4% of the U.S. market, and Chesapeake Energy contributes 2.75 bcf/d, or 3% of the market. The U.S. market currently produces 89 bcf/d of natural gas.
The U.S. Energy Information Administration (EIA) has projected that Henry Hub natural gas prices will recover to $2.90 per million British thermal units (MMBtu) in the second half of 2024 and rise to $3.30/MMBtu in 2025. This is an increase from the current level of $2.15/MMBtu. The anticipated price recovery is largely expected due to the forecast of shut-ins later in the year. The analyst also expressed the view that recent natural gas pricing may be below the break-even point for many gas-focused exploration and production companies.
InvestingPro Insights
In light of CFRA's recent price target revision for Southwestern Energy (NYSE: SWN), InvestingPro data suggests that the company operates with a significant debt burden and its short-term obligations exceed its liquid assets. These financial pressures are reflected in the company's negative P/E ratio over the last twelve months as of Q2 2024, standing at -2.45. However, it’s worth noting that analysts predict Southwestern Energy will be profitable this year, which may be factored into the revised earnings per share estimates and the price target set by CFRA.
InvestingPro data also indicates a market capitalization of approximately $6.77 billion for Southwestern Energy, with a revenue of $5.635 billion over the same time period. Despite a revenue decline of over 50% in the last twelve months as of Q2 2024, the company has maintained a gross profit margin of 30.7%, which could indicate resilience in its operational efficiency.
For investors considering Southwestern Energy's stock, it’s important to be aware that the stock generally trades with low price volatility and is currently trading near its 52-week low. While Southwestern Energy does not pay a dividend to shareholders, it has shown a strong return over the last five years. For those interested in further analysis and additional InvestingPro Tips, there are 7 more tips available on the InvestingPro platform for Southwestern Energy, which can be found at: https://www.investing.com/pro/SWN
These insights and data points provide a more comprehensive picture of Southwestern Energy's financial health and market position, which could be valuable for investors making informed decisions in the context of the company's upcoming acquisition and the broader market conditions.
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