Southwestern Energy Company (SWN) Seems Undervalued - Why Isn't It Rated as Buy?

Southwestern Energy Company may be undervalued with mixed growth prospects, but the 21 analysts following the company give it an rating of hold. Their target prices range from $5.0 to $14.0 per share, for an average of $7.55. At today's price of $5.78, Southwestern Energy Company is trading -23.44% away from its average target price, suggesting there is an analyst consensus of strong upside potential for the stock.

Southwestern Energy Company, an independent energy company, engages in the exploration, development, and production of natural gas, oil, and natural gas liquids (NGLs) in the United States. Based in Spring, TX, the mid-cap Energy company has 1,118 full time employees. Southwestern Energy Company has not offered a regular dividend during the last year.

Southwestern Energy Company has a trailing twelve month P/E ratio of 1.0, compared to an average of 7.54 for the Energy sector. Considering its EPS guidance of $1.16, the company has a forward P/E ratio of 5.0.

The average compound growth rate of the company's historical and projected earnings per share is -6.8%. On this basis, the company's PEG ratio is -0.13. However, this growth rate is probably not sustainable. In its place we will use the broader market's estimated 5-year EPS growth rate of 6.0%, which gives us a PEG ratio of 0.15. Even with this more conservative assumption on EPS growth, the PEG ratio suggests that Southwestern Energy Company shares are underpriced.

On the other hand, the market is potentially undervaluing Southwestern Energy Company in terms of its book value because its P/B ratio is 1.02. In comparison, the sector average P/B ratio is 1.68. The company's shares are currently -29.8% below their Graham number, indicating that its shares have a margin of safety.

If analysts are giving the stock a bad rating, it's likely that they are looking beyond simple valaution metrics and attempting to forecast the company's growth potential. For example, Southwestern Energy Company has narrow margins as you can see in the financial summary below.

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $3,038 $2,308 $6,667 $15,002
Gross Margins 41.0% 43.5% 62.5% 62.9%
Operating Margins 9.8% 0.7% 40.9% 49.2%
Net Margins 29.33% -134.84% -0.37% 12.33%
Net Income (MM) $891 -$3,112 -$25 $1,849
Net Interest Expense (MM) -65 -94 -136 -184
Net Interest Expense (MM) -$65 -$94 -$136 -$184
Depreciation & Amort. (MM) -$471 -$357 -$546 -$1,174
Earnings Per Share $1.65 -$5.42 -$0.03 $5.91
EPS Growth n/a -428.48% 99.45% 19800.0%
Diluted Shares (MM) 540 574 790 1,101
Free Cash Flow (MM) $964 $528 $1,363 $1,039
Capital Expenditures (MM) -$1,099 -$896 -$1,032 -$2,115
Net Current Assets (MM) -$2,792 -$3,992 -$7,888 -$6,938
Current Ratio 0.8 0.66 0.46 0.48
Long Term Debt (MM) $2,242 $3,150 $5,201 $4,392
Net Debt / EBITDA 2.24 -1.41 8.25 1.35
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.