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Southwestern Energy Is More Capital-Intensive After Fayetteville Shale Sale, BMO Says In Downgrade

Southwestern Energy Is More Capital-Intensive After Fayetteville Shale Sale, BMO Says In Downgrade

Southwestern Energy Co. (NYSE: SWN) was hit with a sell-side downgrade Thursday after the sale of its Fayetteville Shale operation. 

The Analyst

BMO Capital Markets analyst Dan McSpirit downgraded Southwestern Energy from Outperform to Market Perform with a $7 price target. 

The Thesis

After the $2-billion transaction, McSpirit said he anticipates an average reinvestment rate of 120 percent in 2019 and 2020.

“We believe this cash flow-outspending outcome is consistent with the $600 million in proceeds from the sale that's been set aside to supplement cash flow to develop the remaining Appalachian Basin asset,” the analyst said. 

About $900 million of the proceeds will be used to pay debt, he said. BMO's valuation applies the sale revenue to the balance sheet in the fourth quarter on the expectation of a December closing date. 

Key catalysts include the use of proceeds from recent Fayetteville asset deprivation as a way to grow reserves and production, as well as to repurchase shares. 

“We estimate fair value of SWN shares using several methodologies, including historical multiples of EBITDA, relative trading multiples of peers and absolute value utilizing an after-tax net asset value approach,” McSpirit said. 

Price Action

Southwestern Energy shares were trading down 6.63 percent to $4.93 at the time of publication Thursday. 

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Photo courtesy of Southwestern Energy. 

Latest Ratings for SWN

Oct 2019UpgradesUnderweightEqual-Weight
Oct 2019MaintainsUnderweight
Sep 2019MaintainsNeutral

View More Analyst Ratings for SWN
View the Latest Analyst Ratings

Posted-In: Appalachian Basin BMO Capital MarketsAnalyst Color News Downgrades Price Target Asset Sales Analyst Ratings Best of Benzinga


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