Southwestern Energy Has 30 Percent Downside, Barclays Warns

On Tuesday, Barclays issued a company note on Southwestern Energy Company SWN after Southwestern cut their 2016 budget by 80 percent and announced 2016 production may decline 15 percent. Analysts at Barclays downgraded Southwestern from Equal-Weight to Underweight and lowered their price target from $7 to $4.

Thomas Driscoll, an analyst at Barclays, wrote, "Southwestern faces challenges presented by a levered balance sheet and weak gas prices. The company faces steep production declines. The shares trade at a 15 percent premium to peers on multiples of debt-adjusted CF. That premium rises to 45 percent when adjusting for capitalized expenses."

Related Link: Southwestern Energy Downgraded To Sell Equivalent By Stephens: Here's Why

Justification For The Downgrade And Cut

Barclays gave two key reasons why they downgraded Southwestern Energy:

1. Large Debt Balance Analysts at Barclays noted that Southwestern Energy is one of the top three most levered oil firms that they cover with nearly 5.0x net debt to forward EBITDA. While Southwestern has obtained relief for some of its contracts, this debt may place a heavy burden on the company to continue to cut costs in an attempt to generate sizable cash flow to pay off their debt payments.

2. Operational Cuts In an attempt to cut costs, Barclays noted that Southwestern is cutting production and operating zero rigs across their portfolio. This could weaken top line growth and profitability, particularly as gas prices continue to remain depressed.

At The Time Of This Writing...

Southwestern was recently seen trading down 3.46 percent on the day at $5.58.