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Co. Spotlight - Southwestern Energy: |  - Co. Spotlights available via RSS feed
| Energized |  
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| | SWN | $30 | The Good: Focusing on natural gas.
The Bad: Company is almost totally dependent on natural gas prices.
The Beautiful: Earnings are rocketing. | P/E | 28 | | PSR | 5.9 | | ROE | 24.5% | | Debt/Eq. | 0.5% | | Div. Yield | 0% |
September 22, 2008 - Southwestern Energy Co. (SWN-NYSE) an independent energy company, engages in the exploration for and production of natural gas in the United States. It has two segments, Exploration and Production; and Midstream Services. The Exploration and Production segment engages in the exploration, development, and production of natural gas and oil in the United States. This segment also engages in conventional drilling programs in the Arkansas part of the Arkoma Basin; and conducts development drilling and exploration programs in the Oklahoma portion of the Arkoma Basin and in Texas, as well as operates drilling rigs in the Fayetteville Shale play and in East Texas.
The Midstream Services segment engages in the marketing of its own gas production, as well as third-party natural gas; and transportation of natural gas. As of December 31, 2007, the company's estimated proved natural gas and oil reserves were approximately 1,450Bcfe of gas. The company was founded in 1929 and is headquartered in Houston, Texas. Southwestern Energy Company: it's a gas. And it will get even more so as the company divests certain businesses to focus on buying more natural gas properties or leases. With the price of natural gas increasing at a noticeable rate up until recently, SWN generated significantly higher revenues and profits over the last 2 years. In the second quarter of this year, sales more than doubled ($604 million vs $270 million in the same quarter last year). Earnings did even better. They tripled (39 cents vs 13 cents last year). Higher production along with higher prices made the difference. Overall production reached 45.1 equivalent billion cubic feet (bcfe) in the quarter, up 74%. Southwestern sold some assets recently to bolster capital, and fund investments in production growth. It disposed of its utility, Arkansas Western Gas Company for $230 million. That was on top of the sale in the second quarter of leases, wells and certain equipment from the Fayatteville Shale play to XTO Energy for close to $518 million. SWN has also committed to sell oil and gas leases and wells in the Permian Basin for $225 million. These new funds will be put to use mostly at the Fayatteville Shale site. Management announced new production goals for 2008, raising them to 181-185 bcfe, up from 168-172 bcfe. That's an increase of almost 60% over 2007. Along with the higher production should come much better earnings. In 2005, they were 48 cents a share, as they were again in 2006. Last year, they moved up to 64 cents. This year, analysts see $1.64 and next year $1.98. This quarter (ending in September) the 22 analysts who follow the company forecast 46 cents a share (up from 15 cents a year ago). Next quarter they see 48 cents a share, a strong improvement over the 21 cents a share last year. For the next 5 years, consensus growth estimate for annual earnings, on average, is 33.25%, down from the extraodinary annual average increase of 42.35% in the last 5 years (most of which occurred in the last 2 years). More numbers: Market Cap is $10.33 billion. Forward P/E ratio is 15.2.
Profit margin for the last 12 months was 20.1% while Operating margin was 34.6%. Return on Assets was 11.19% and Return On Equity was an impressive 24.53%. Price to Book is 7.3. There are 343 million shares outstanding. Insiders own 3.66% of them while institutions own 88.4%. There is no dividend. This stock sold for 70 cents a share in 2000 (split adjusted for 3 stock splits, each 2 for 1). It reached an all-time high this year of $52.70. It's off about 40%. With earnings growing more rapidly than most other companies, this is a stock worth investors' time and attention. The selloff gives a more prudent entry point. But the caveat is the total dependence on the price of natural gas. If this is a mild winter, the earnings currently forecast will be in jeopardy. - Company Web site: www.swn.com - Ted Allrich
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