Range Resources (RRC) works in the exploration, development, and acquisition of natural gas resources and operates in the Appalachian region of southwest Pennsylvania. The company’s revenue is benefiting from the rising price of natural gas futures due to global disruptions and higher demand.
Natural gas contracts are currently trading at a high price, not seen since 2008. Range Resources’ recent Q1-2022 report shows that the company performed well due to this trend. The company’s stock price has gained around 204% over the last 12 months.
I rate the company as bullish in the long run, as it seems that the company is currently undervalued.
Global Natural Gas Conditions
Between 2009 and 2021, natural gas futures were stable, generally trading under $5/MMBtu. In 2005 and 2008, the price was especially high, hitting a peak of $15.78/MMBtu in late 2005. Since 2021, the price has been rising due to limited production and high demand, and the Ukraine War has caused a further catalyst for a rally.
Today, the price is sitting around $7.61/MMBtu. The European Union is about to vote to ban Russian crude and natural gas exports to Europe. Range Resources, in its Q1-2022 report, predicts that the current price volatility in natural gas futures will remain for 2022.
Q1-2022 Financial Performance
Range Resources recently released its Q1-2022 results. The company reported a revenue increase of 71% year-over-year, with $1.03 billion for Q1 2022 versus $603.4 million during last year’s same quarter.
Range Resources did not produce more products year-over-year, but the prices of natural gas, natural gas liquids, and WTI crude oil have increased significantly. The company reports that natural gas prices have doubled since Q1 2021 and that its commodity prices have increased 108%.
Range Resources uses the derivatives market as part of its business strategy, and the results of derivative fair value changes affect the company’s gains and losses, including final revenue numbers. Derivative fair value loss for Q1 2022 was $939.1 million compared to a loss of $57.88 million during the same quarter last year. Of the $939 million, $805.9 million was in non-cash fair value adjustments and $133 million in cash-paid derivative settlements.
The company explains that these fair value adjustments are part of its revenue reporting. Thus, the final revenue numbers for the company were $180.75 million, representing a 71.1% loss year-over-year. The overall net loss reported was $456.8 million.
The company reported non-GAAP EPS of $1.18, in line with expectations. Range Resources remains cash-heavy, generating $489 million in adjusted cash flow from operations for the quarter and $303.7 million in free cash flow. Range Resources paid $350 million towards its debt and restructured some of its senior notes. The company is committed to remaining cash positive and is undergoing a $500 million stock buyback program
The consensus for Range Resources’ next earnings report is that it will generate $871 million of revenue. It is likely that the company will hit the mark, but fair value changes of derivatives may play a role again in the company’s financial performance. I recommend that interested investors read Range Resources’ explanation of the relationship between the price of derivatives and the expectations of future revenue.
In its Q1-2021 SEC filing, the company writes, “Gains on our derivatives generally indicate potentially lower wellhead revenues in the future while losses indicate potentially higher future wellhead revenues.”
Stock Price Movement, Valuation
Range Resources’ stock price has been on a two-year uptrend. The stock price recently hit its 52-week high of $34.61 per share. RRC stock has increased 221% over the last 12 months and 77% year-to-date. Its 12-month range was from $9.50 to $34.61.
Since March, the stock has seen heavy trading momentum. There is still room for a long-term uptrend since the stock seems undervalued, at a 2.8x forward total-enterprise-value-to-revenue multiple.
Wall Street’s Take
Turning to Wall Street, Range Resources comes in as a Moderate Buy based on seven Buys, six Holds, and one Sell rating assigned over the last three months. The Range Resources price target of $38.86 implies 24.2% upside potential.
Conclusion
Range Resources is one of the largest natural gas producers in the world, and its stock price has been on a long-term uptrend. The company’s revenue has benefited from the rising cost of natural gas and related commodities. The company reported strong Q1-2022 revenue numbers, despite its non-cash loss due to fair value adjustments of its derivatives.
The company remains cash-heavy and foresees consistent natural gas production over the next year. There is likely more upside potential and excellent financial performance to come from Range Resources. I rate the company as bullish in the long term.
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