Efficient Haynesville Production Will Capitalize On Rising Global Gas Demand

Key Takeaways

• Technical and operational advances are enabling Comstock to achieve superior margins and cash flow, giving it an edge in both cost efficiency and production scale.
  
• Strategic infrastructure and partnerships uniquely position Comstock to secure premium contracts and tap into long-term growth from rising energy and data center demand.
  
• Heavy concentration in natural gas and lack of diversification expose Comstock to market volatility, regulatory pressures, and rising costs, threatening revenue stability and long-term profitability.

Catalysts

An independent energy company, engages in the acquisition, exploration, development, and production of natural gas and oil properties in the United States.

• Analyst consensus expects Western Haynesville resource growth and volume expansion, but this underappreciates the rapid pace of derisking and technical advancement now being achieved; with well costs already dropping below $2,000 per foot in select areas and continual improvements in drilling and completions, Comstock is positioned to dramatically accelerate cash flow and margin expansion far ahead of market expectations.
  
• Analysts broadly agree that efficiency gains will drive higher net margins, but the company's deep inventory of ultra-long lateral and horseshoe wells-combined with the swift adoption of proprietary completion tweaks-suggests a structural and outsized advantage in per-unit operating costs, potentially allowing Comstock to sustain industry-leading margins even during periods of lower gas prices.
  
• With a newly operational 400 million cubic feet per day treating plant and ample undedicated Western Haynesville production near rapidly growing Texas demand hubs, Comstock has a unique opportunity to lock in premium-priced, long-term supply agreements with utilities, LNG exporters, and emerging data center loads, likely supporting superior recurring revenues.
  
• Unlike competitors, Comstock is proactively advancing a collaborative model with NextEra to develop gas-fired generation and data center assets on its acreage, which could transform its business mix to include stable, high-margin sales channels directly embedded in the secular growth of AI-driven power demand, driving significant uplift in future earnings visibility and valuation.
  
• The ongoing coring and geoscience program is revealing multi-horizon and multi-fairway potential that could add thousands of drilling locations and extend inventory life well beyond current forecasts, providing a platform for decades of compound asset growth and robust free cash flow generation as global gas demand and electrification accelerate.

Comstock Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Comstock Resources compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Comstock Resources's revenue will grow by 18.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -4.4% today to 26.5% in 3 years time.
• The bullish analysts expect earnings to reach $724.1 million (and earnings per share of $2.46) by about September 2028, up from $-72.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from -62.2x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.6x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

Comstock Resources Future Earnings Per Share Growth

Risks

• Comstock Resources' heavy focus on natural gas from the Haynesville and Bossier Shales leaves it exposed to the long-term secular trend of shifting global energy demand away from fossil fuels, which could result in downward pressure on revenue and long-term earnings due to declining natural gas prices and consumption.
  
• The company's ongoing need for significant capital expenditures to maintain and grow its drilling program, combined with a leverage ratio of 3x and reliance on asset sales for deleveraging, increases the risk of balance sheet strain if commodity prices remain subdued, ultimately impacting free cash flow and the ability to refinance debt.
  
• The lack of diversification beyond upstream natural gas production, and limited vertical integration into midstream or downstream operations, increases Comstock's vulnerability to price volatility and industry overcapacity, which could suppress net margins and reduce overall revenue stability.
  
• Growing global ESG mandates and rising regulatory scrutiny on methane emissions and environmental performance could restrict access to low-cost capital and raise compliance costs, ultimately increasing Comstock's cost structure and depressing net margins and profitability.
  
• Technological advancements and cost efficiencies achieved by larger peers in shale gas production, along with persistent North American overcapacity, could erode Comstock's market share and competitive position, making it harder to sustain or grow revenue and maintain robust earnings over the long term.

Valuation

• The assumed bullish price target for Comstock Resources is $31.6, which represents two standard deviations above the consensus price target of $18.82. This valuation is based on what can be assumed as the expectations of Comstock Resources's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $32.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $724.1 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of $15.4, the bullish analyst price target of $31.6 is 51.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.