Oil & Gas Stocks

Southwestern Energy Company Valuation – February 2016 Update $SWN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Southwestern Energy Company (SWN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Southwestern Energy Company is an energy company engaged in natural gas and oil exploration, development and production (E&P). The Company is focused on creating and capturing additional value through its natural gas gathering and marketing businesses, which it refer to as Midstream Services. The Company conducts its business through subsidiaries. The Company’s operations are focused within the United States on development of two natural gas reservoirs located in Arkansas and Pennsylvania. Its operations in Arkansas are focused on a natural gas reservoir, Fayetteville Shale, and its operations in northeast Pennsylvania are focused on the natural gas reservoir, Marcellus Shale. The Company engages in natural gas gathering activities in Arkansas, Texas, Louisiana, Pennsylvania and West Virginia.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of SWN

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,268,067,997 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.73 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -180.58% Fail
6. Moderate PEmg Ratio PEmg < 20 -6.14 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.70 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.73 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -22.00 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

SWN value chart February 2016

EPSmg -$1.33
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth -$19.29
MG Value based on 0% Growth -$11.31
Market Implied Growth Rate -7.32%
Current Price $8.17
% of Intrinsic Value N/A

Southwestern Energy Company does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth or stability over the last ten years, lack of dividends, and poor PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets, lack of dividends and the lack of earnings growth or stability over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.31 in 2011 to an estimated loss of $1.33 for 2015.  This negative EPSmg does not support a positive valuation.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Southwestern Energy Company (SWN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

SWN charts February 2016

Net Current Asset Value (NCAV) -$14.96
Graham Number #NUM!
PEmg -6.14
Current Ratio 0.73
PB Ratio 0.70
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $570,000,000
Total Current Liabilities $782,000,000
Long-Term Debt $4,663,000,000
Total Assets $10,725,000,000
Intangible Assets $0
Total Liabilities $6,288,000,000
Shares Outstanding (Diluted Average) 382,098,000

Earnings Per Share History

Next Fiscal Year Estimate -$6.84
Dec2014 $2.62
Dec2013 $2.00
Dec2012 -$2.03
Dec2011 $1.82
Dec2010 $1.73
Dec2009 -$0.10
Dec2008 $1.64
Dec2007 $0.64
Dec2006 $0.48
Dec2005 $0.48
Dec2004 $0.35
Dec2003 $0.18
Dec2002 $0.07
Dec2001 $0.17
Dec2000 -$0.23
Dec1999 $0.05
Dec1998 -$0.15
Dec1997 $0.10
Dec1996 $0.10

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$1.33
Dec2014 $1.36
Dec2013 $0.71
Dec2012 $0.25
Dec2011 $1.31
Dec2010 $1.00
Dec2009 $0.63
Dec2008 $0.90
Dec2007 $0.49
Dec2006 $0.38
Dec2005 $0.31
Dec2004 $0.19
Dec2003 $0.08
Dec2002 $0.02
Dec2001 -$0.01
Dec2000 -$0.08
Dec1999 $0.01

Recommended Reading:

Other ModernGraham posts about the company

26 Companies in the Spotlight This Week – 12/13/14

Other ModernGraham posts about related companies

Apache Corporation Valuation – January 2016 Update $APA
Anadarko Petroleum Corp Valuation – January 2016 Update $APC
Cabot Oil & Gas Corp Valuation – December 2015 Update $COG
Helmerich & Payne Inc Valuation – November 2015 Update $HP
Murphy Oil Corporation Valuation – November 2015 Update $MUR
Denbury Resources Inc. Valuation – November 2015 Update $DNR
Western Refining Inc. Valuation – October 2015 Update $WNR
Valero Energy Corporation Valuation – October 2015 Update $VLO
Schlumberger Limited Valuation – October 2015 Update $SLB
National Oilwell Varco Inc. Valuation – October 2015 Update $NOV

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top