On Monday, Mizuho Securities updated its stance on Comstock Resources (NYSE:CRK), increasing the stock's price target to $10 from the previous $9, while continuing to recommend an Underperform rating on the shares. The firm pointed to a slight EBITDA outperformance due to higher production volumes but noted a shortfall in free cash flow resulting from increased expenditure on land acquisition.
Comstock Resources has recently adjusted its operations, dropping two drilling rigs and reducing its dividend as a reaction to falling gas prices. Despite expectations from investors for further activity reductions, the company's remaining drilling projects are anticipated to continue without additional cutbacks until late in the second quarter of 2024.
Production volumes are projected to decline by approximately 2% compared to the fourth quarter of 2023, yet they are likely to be at the upper end of the forecasted range. This is due to the timing of well activity, which could lead to steeper quarter-over-quarter declines in the second half of 2024.
The firm's model forecasts a modest beat on EBITDA relative to consensus, despite incorporating lower gas price realizations. Comstock Resources has secured roughly $100 million from a principal investor, but around $60 million of this has been allocated to lease acquisitions, surpassing the previously set capital expenditure budget of $30-40 million.
As a result, Mizuho anticipates that the company's capital spending for the quarter will exceed guidance, contributing to a free cash flow miss, with an estimate of negative $149 million compared to the consensus estimate of negative $110 million.
By adjusting the net asset value (NAV)-based price target to $10, Mizuho acknowledges the slight financial performance improvement but maintains a cautious stance on Comstock Resources due to its high leverage situation.
InvestingPro Insights
Mizuho Securities' recent update on Comstock Resources (NYSE:CRK) suggests close monitoring of the company's financial health and operational performance is essential. According to real-time data from InvestingPro, Comstock Resources has a market capitalization of $2.79 billion and is trading with a P/E ratio of 12.43, which adjusts to 13.22 based on the last twelve months as of Q4 2023. This valuation comes amidst a backdrop of a significant 56.86% revenue decline over the same period. Despite the revenue contraction, the company has maintained a solid gross profit margin of 55.98%.
InvestingPro Tips highlight several critical points that investors should consider. Comstock Resources operates with a substantial debt burden and is quickly burning through cash, which could be concerning given the shortfall in free cash flow noted by Mizuho. Moreover, the company's short-term obligations exceed its liquid assets, which may pose liquidity risks. However, it's not all negative; analysts predict that the company will be profitable this year, and Comstock has been profitable over the last twelve months. Additionally, the company has seen a strong return over the last month, with a 1-month price total return of 16.5%.
For a deeper analysis of Comstock Resources and additional insights, investors can explore more InvestingPro Tips at https://www.investing.com/pro/CRK. There are 9 additional tips listed in InvestingPro that can provide further guidance. To benefit from these insights, users may use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.