Fort Worth, Tex.-based natural gas, natural gas liquids (NGLs), and oil producer Range Resources Corporation’s (RRC) operations focus mainly on stacked-pay projects in the Appalachian Basin. Its share price has soared 33.6% over the past month to close yesterday’s trading session at $18.39, after hitting its 52-week high of $18.82, due primarily to galloping natural gas prices.
However, RRC’s natural gas production decreased in the second quarter. Also, its expenses increased considerably, and it reported a loss. Moreover, the company is being investigated by several law firms for potential law violations. For example, it is alleged that RRC artificially decreased its periodically reported cost estimates to plug and abandon its wells. So, the company’s near-term prospects look uncertain.
Here are the factors that we think could shape RRC’s performance in the coming months:
Sustainability Measures
RRC has taken several sustainability focused measures over the past few years, from committing to a large-scale water recycling program to joining the Environmental Partnership in 2018, a coalition of more than 40 companies. Last month, the company also announced that, according to Rystad Energy’s third-party research, it has the second-lowest CO2 emissions intensity among global natural gas and oil producers. Furthermore, it formed a new Environmental Social Governance (ESG) and Safety Committee in June 2015. These measures represent RRC’s commitment to reach a target of net-zero GHG emissions by 2025.
Mixed Financials
RRC’s total revenues increased 15.4% year-over-year to $434.72 million for the second quarter. ended June 30, 2021, and its revenue from natural gas, NGLs, and oil sales came in at $621.86 million, up 78.1% year-over-year. However, its total costs and expenses increased 4.6% year-over-year to $592.46 million.
While its oil production increased 7.9% year-over-year to 777,067 bbl, its natural gas production decreased 12.7% year-over-year to 131.89 bcf. Its net was $156.47 million compared to $167.58 million in the year-ago period. Also, its loss per share came was t $0.65, versus $0.70 in the prior year quarter.
Ongoing Investigation
Several law firms have filed lawsuits against RRC for alleged violations of the Securities Exchange Act of 1934. It is alleged that the company has improperly designated the status of its wells in Pennsylvania since at least 2013, among other allegations. Also, the Pennsylvania Department of Environmental Protection (DEP) fined RRC $294,000 earlier this year for violations of the 2012 Oil and Gas Act.
Consensus Price Target Indicates Downside
Wall Street analysts expect RRC shares to hit $16.93 in the near term, which indicates a potential decline of 7.9%. Of 16 analysts that have rated the stock, 10 rated it Hold, and two rated it Sell.
POWR Ratings Reflect Uncertain Near-Term Prospects
RRC has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. RRC has a C grade for Quality, which is in sync with its negative values for trailing-12-month ROCE, ROTA, and ROTC, versus the 0.86%, 2.69%, and 0.52% respective industry averages.
The stock has a C grade for Value, consistent with its 2.86x and 1.75x respective forward EV/S and P/S, which are higher than the 2.43x and 1.27x industry averages.
Also, RRC has a D grade for Stability, which is in sync with its 2.69 beta. It has a D grade for Sentiment also, consistent with unfavorable analyst sentiment.
RRC is ranked #81 of 93 stocks in the Energy - Oil & Gas industry. Click here to see the additional POWR Ratings for RRC (Growth and Momentum).
Bottom Line
RRC’s revenue and EPS are expected to grow 61.7% and 1,966.7%, respectively, year-over-year to $2.60 billion and $1.68in its fiscal year 2021, due to soaring natural gas prices. However, the stock seems to have hit its peak, and Wall Street analysts expect it to decline in the near term. In addition, ongoing investigations might negatively impact RRC. So, we think it could be wise to wait before scooping up its shares.
How Does Range Resources (RRC) Stack Up Against its Peers?
While it could be wise to wait for a better entry point in RRC, which has an overall POWR Rating of C, you one might want to consider investing in the following A (Strong Buy) or B (Buy)-rated Energy - Oil & Gas stocks: SilverBow Resources, Inc. (SBOW), Baytex Energy Corp. (BTEGF), and Amplify Energy Corp. (AMPY).
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RRC shares rose $0.49 (+2.66%) in premarket trading Wednesday. Year-to-date, RRC has gained 181.79%, versus a 19.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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