Southwestern Energy Has 32% Downside According To Credit Suisse

Southwestern Energy Company SWN announced a definitive agreement to sell a part of its Appalachia acreage. Credit Suisse’s Mark Lear maintained a Neutral rating for the company, while raising the price target from $8 to $9 to reflect updated liquidity from the planned Appalachian Basin divestiture.

The divestiture would add $450MM in cash to Southwestern Energy’s balance sheet. Analyst Mark Lear mentioned that this would reduce yearend-2016 leverage from 9.8x to 9.6x, since “the additional liquidity is slightly offset by a lower marked to market 2Q16 gas price.”

Although Southwestern Energy is evaluating bids for its ~175,000-acre position in Southwest Appalachia, it is likely to aim at selling assets located in eastern WV this year, Lear said. “As the gas strip has moved up considerably, SWN could look to begin completing DUCs later in the year if prices stabilize near current levels.”

Downside

The new price target implies 32 percent downside to current share prices, compared to 4 percent upside for Credit Suisse’s coverage universe, the analyst commented.