Range Resources: Low-Cost Natural Gas Stock Ready To Fuel Your Portfolio

seekingalpha10-27

Range Resources' Q3-2024 results exceeded expectations, driving a 3.5% stock price increase with significant trading volume.The company benefits from low-cost production and strategic positioning in ...

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The market appreciated Range Resources' results with the stock price that increased by 3.5% in the following day with almost 6 million shares traded (vs a 3-month average traded volume of 2.1 million shares). In this article, I will provide my interpretation of the Q3-2024 results and I will explain why I believe that Range Resources is still a BUY opportunity. Stock performance Range Resources is currently trading at $31.3/share, equivalent to a market cap of $7.5 billion. Over the last 52-week, the stock reached a maximum of $39.3/share and a minimum of $27.9/share. Since the beginning of the year, Range Resources has lost 10.4% in value, mostly due to natural gas price fluctuations. Data by YChartsQ3-2024 production volumes, sales, and costs In terms of revenues, Q3-2024 was quite in line with Q3-2023: indeed, total revenues increased by a small 1% to $615 million. In particular, sales from natural gas, NGLs and oil accounted for $533 million with hedging generating an extra $47 million of revenues and brokered natural gas and additional $35 million. The 1% yearly growth is explained by a 4% increase in produced volumes, which was almost all offset by an increase in the average realized prices before derivatives settlement. If we compare Q3-2024 with the previous quarter (Q2-2024), once can see that overall revenues increased by 16% from $530 million to $615 million. During Q3-2024, the average daily production was 2.2 Bcfe/d, of which about 68% was represented by natural gas (1.5 Bcfe/d) with the remaining being NGLs (111.4 kbbl/d) and oil (5.6 kbbl/d). The Q3-2024 production saw an increase both versus Q3-2023 (+4%) and versus Q2-2024 (+3%), mostly driven by higher NGLs produced volumes. Focusing on costs, operating expenses (opex) remained unchanged year-on-year at $549 million with transportation, processing and compression representing the largest item ($306 million). Other relevant costs are D&A ($91 million), G&A ($42 million) and financial interests ($29 million). Net income was $51 million, showing a 2% increase year-on-year. Cash flows and debt In the first nine months of the year, cash flow from operations was positive at $726 million, mostly driven by net income and cash settlements on derivatives as well as changes in working capital. Cash flow from investing activities was negative at -$471 million due to the addition of new natural gas properties. Cash flow from financing was negative at -$188 million since the company paid back senior notes ($70 million) and distributed dividends ($58 million) and repurchased stock. Overall, the net cash flow was positive at $65 million, bringing cash and cash equivalent at $277 million (+$26 million vs Q2-2024). Considering a total debt of $1.7 billion (of which $617 million is the current portion), the net debt amounts to $1.4 billion, or 19% of the market cap. Stock repurchase program In 2019, Range Resources launched a share buyback program that was further extended in size in 2022. As of the end of Q3-2024, there is still authorization for buying back stocks worth about $1 billion. From July to September 2024, the company bought approximately 1.1 million shares for an overall cost of $34 million. Range Resources’ competitive advantage Range Resources is a company that I like because I believe it has two strengths that make it stand apart from its competitors. The first one is represented by the fact that Range Resources is a low-cost producer: indeed, thanks to efficient drilling and completion techniques, the company maintains a competitive advantage over peers by producing at lower costs, which is particularly beneficial when natural gas prices fluctuate. Moreover, by being capital efficient, Range Resources – ceteris paribus - needs to reinvest a smaller percentage of its free cash flow to maintain production at a stable level.   Range ResourcesThe second big strength is represented by its positioning in the Marcellus Shale: the Marcellus Shale is a region with high-quality reserves and high volumes of NGLs, which can help to drive profitability in periods when natural gas prices are low. Moreover, from a geographical point of view, operating in the Marcellus Shale enables Range Resource to have multiple export routes, ensuring the company can find the best off-taker for all its products.   Range ResourcesRisks Being an oil & gas company, the most relevant risk to which Range Resources is exposed is represented by the commodity price risk. Considering that in Q3-2024, 68% of the average daily production was coming from natural gas, it is clear that a drop in natural gas prices could seriously affect the company's bottom line. However, Range Resources’ top management is aware of this risk and minimizes it with a hedging strategy. As can be seen from the chart below, for Q4-2024, more than 50% of natural gas volume is hedged at a price between $3.72 and $4.93, while for 2025, so far, about 35% of the natural gas production is hedged.   Range ResourcesConclusion  I believe that Range Resource is a strong company with a healthy balance sheet and sound financials. The company has a series of strengths, such as the low-cost production and the positioning in the Marcellus Shale, that make it interesting for long-term investors who believe in the rise of US natural gas prices. In addition, the buyback program offers another opportunity for stock price growth that should not be forgotten. However, as mentioned in the previous paragraph, commodity prices fluctuate a lot and therefore, I would not suggest Range Resource to short-term investors looking for a quick profit. 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