On Monday, BofA Securities began coverage of Comstock Resources (NYSE:CRK) shares, a natural gas exploration and production company with a focus on the Haynesville region. The firm has issued a Buy rating for the company's stock, accompanied by a price target of $14.00.
The analyst at BofA Securities highlighted Comstock Resources as a small to mid-cap (SMID cap) company that is highly leveraged to natural gas, with debt comprising 45% of its enterprise value (EV). Despite this leverage, the company's debt has long-dated maturities, not due until 2029 and 2030.
Comstock Resources' hedge book is relatively open with only 37% and 34% of its production hedged in 2025 and 2026, respectively. This positioning allows the company to benefit from potential increases in gas prices, while a $3.50 per thousand cubic feet (mcf) floor safeguards its capital program against price drops.
The analyst emphasized that Comstock Resources' operational leverage to rising gas prices and a projected mid-single digit compound annual growth rate (CAGR) in production could significantly enhance the company's free cash flow yield. It is expected to rise from 1.7% in 2025 to 11.8% by 2030.
The Buy rating and $14 price target reflect BofA Securities' positive outlook on Comstock Resources' future performance, considering the company's financial structure, hedging strategy, and growth potential in a favorable gas price environment.
In other recent news, Comstock Resources reported mixed earnings for the second quarter, with an adjusted net loss of $0.20 per share due to lower-than-expected gas volumes, despite a modest 4% year-over-year increase in production.
KeyBanc maintained a Sector Weight rating on Comstock, citing concerns about the company's high leverage ratio and weak natural gas prices, while acknowledging promising results from wells in the Western Haynesville area. Piper Sandler downgraded Comstock from Neutral to Underweight primarily due to a decrease in long-term natural gas price assumptions.
In other recent developments, majority shareholder Jerry Jones increased his investment in Comstock, purchasing additional shares worth $6.1 million. The company also provided third-quarter 2024 production guidance, maintaining its full-year 2024 guidance steady despite challenges. These recent developments highlight Comstock's efforts to navigate the challenging natural gas market and position itself for potential future growth.
Roth/MKM maintained a neutral rating and a $10.00 stock price target for the company, citing concerns such as significant exposure to natural gas price risks and higher leverage compared to peers.
The firm anticipates that Comstock Resources will be one of the few exploration and production companies to spend more than its cash flow in both 2024 and 2025. Despite these challenges, Comstock continues to advance its operations in the Western Haynesville, with plans to turn new wells in line during the fourth quarter of 2024.
Piper Sandler reduced the stock's price target to $5.00, down from the previous $8.00, primarily due to a decrease in the long-term natural gas price assumption. The firm also decreased its capital expenditure estimate for the fiscal year 2025 to approximately $700 million, leading to a projected 9% drop in production forecasts for 2025.
Despite this, Comstock has provided third-quarter 2024 production guidance with a midpoint of 1.45 billion cubic feet equivalent per day, keeping its full-year 2024 guidance steady.
Finally, Comstock Resources has been the subject of several recent developments, including an adjusted net loss of $0.20 per share for the second quarter due to lower-than-anticipated gas volumes. Despite these challenges, the company remains optimistic about future prospects, citing its strong management team and financial liquidity.
InvestingPro Insights
While BofA Securities has initiated coverage on Comstock Resources (NYSE:CRK) with a Buy rating, recent InvestingPro data and tips provide additional context for investors to consider. The company's market capitalization stands at $3.51 billion, with a notable dividend yield of 4.17% as of the latest data. This dividend could be attractive to income-focused investors, aligning with the company's potential for increased free cash flow highlighted in the analyst report.
However, InvestingPro Tips caution that Comstock Resources is operating with a significant debt burden and is quickly burning through cash. This aligns with the BofA Securities analysis mentioning the company's leveraged position, with debt comprising 45% of its enterprise value. The company's Price to Book ratio of 1.51 suggests a moderate valuation relative to its book value.
It is worth noting that Comstock Resources has shown strong price performance recently, with a 15.38% total return over the past three months. This positive momentum could be related to the optimistic outlook on natural gas prices and the company's open hedge position mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 9 additional tips for Comstock Resources, providing a deeper understanding of the company's financial health and market position.
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