Oil & Gas Stocks

Range Resources Corp Valuation – May 2018 $RRC

Company Profile (excerpt from Reuters): Range Resources Corporation, incorporated on March 26, 1980, is an independent natural gas, natural gas liquids (NGLs) and oil company. The Company is engaged in the exploration and production of natural gas, NGLs and oil in the United States. The Company is engaged in the exploration, development and acquisition of natural gas and crude oil properties located primarily in the Appalachian and North Louisiana regions of the United States. Its principal areas of operation are the Marcellus Shale of Pennsylvania and the Lower Cotton Valley formation of North Louisiana. Its properties consist of interests in developed and undeveloped natural gas and oil leases.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of RRC – May 2018

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 $3,483,144,462 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.50 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -32.24% Fail
6. Moderate PEmg Ratio PEmg < 20 -35.35 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.58 Fail
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 0.50 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -11.97 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$0.39
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth -$5.59
MG Value based on 0% Growth -$3.28
Market Implied Growth Rate -21.92%
Current Price $13.62
% of Intrinsic Value N/A

Range Resources Corp. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.41 in 2014 to an estimated $-0.39 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Range Resources Corp. revealed the company was trading below its Graham Number of $14.11. The company pays a dividend of $0.08 per share, for a yield of 0.6% Its PEmg (price over earnings per share – ModernGraham) was -35.35, which was below the industry average of 97.7, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-22.54.

Range Resources Corp. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$22.54
Graham Number $14.11
PEmg -35.35
Current Ratio 0.50
PB Ratio 0.58
Current Dividend $0.08
Dividend Yield 0.59%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $337,947,000
Total Current Liabilities $678,846,000
Long-Term Debt $4,081,694,000
Total Assets $11,730,168,000
Intangible Assets $1,641,197,000
Total Liabilities $5,895,576,000
Shares Outstanding (Diluted Average) 246,594,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.38
Dec2017 $1.34
Dec2016 -$2.75
Dec2015 -$4.29
Dec2014 $3.79
Dec2013 $0.70
Dec2012 $0.08
Dec2011 $0.36
Dec2010 -$1.53
Dec2009 -$0.35
Dec2008 $2.25
Dec2007 $1.54
Dec2006 $1.14
Dec2005 $0.85
Dec2004 $0.38
Dec2003 $0.41
Dec2002 $0.32
Dec2001 $0.24
Dec2000 $0.64
Dec1999 -$0.18
Dec1998 -$4.55

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.39
Dec2017 -$0.59
Dec2016 -$1.20
Dec2015 -$0.24
Dec2014 $1.41
Dec2013 $0.10
Dec2012 -$0.08
Dec2011 $0.04
Dec2010 $0.13
Dec2009 $1.00
Dec2008 $1.53
Dec2007 $1.07
Dec2006 $0.76
Dec2005 $0.53
Dec2004 $0.37
Dec2003 $0.34
Dec2002 -$0.03

Recommended Reading:

Other ModernGraham posts about the company

Range Resources Corp Valuation – January 2017 $RRC
Range Resources Corporation Analysis – August 2015 Update $RRC
19 Companies to Research This Week – 8/23/14
Range Resources Corporation Annual Valuation – 2014 $RRC

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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.

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