Efficient Drilling And Liberty Energy Projects Will Secure Future Advantage

Key Takeaways

• Range Resources focuses on low-cost operations and efficient resource management to sustain free cash flow and enhance future growth.
  
• The company leverages market opportunities and production efficiency to improve revenue, net margins, and cash flow amid growing demand.
  
• Reliance on infrastructure development and NGL exports faces uncertainties and regulatory risks, impacting demand growth, pricing, and profitability amid necessary efficiency improvements.

Catalysts

Operates as an independent natural gas, natural gas liquids (NGLs), and oil company in the United States.

• Range Resources is executing a disciplined long-term plan focused on maintaining low full-cycle costs and high margins, which supports sustained free cash flow generation and positions the company for efficient future growth. This operational efficiency is likely to positively impact future earnings and free cash flow.
  
• The company is capitalizing on its low-capital intensity operations, with plans to maintain significant production levels using just two drilling rigs and one completion crew. This approach supports growth in future cash flows while reducing reliance on capital expenditures, impacting net margins and cash flow positively.
  
• Range Resources is participating in the development of new in-basin demand projects, such as the Liberty Energy and Imperial Land Corporation power generation facility, which could enhance local natural gas demand and potentially improve regional pricing. This could have a positive impact on both revenue and net margins.
  
• The company continues to enhance its well results and maintain operational efficiency, demonstrated by record drilling performance and increased completions efficiency. This consistent operational improvement supports long-term production targets and could improve future revenue and cash flow per share.
  
• Being well-positioned to meet emerging domestic and international demand for natural gas and NGLs, particularly through its transportation and export capabilities, Range Resources anticipates leveraging these opportunities to optimize sales mix and thereby improve future cash flow and earnings.

Range Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Range Resources's revenue will grow by 14.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.4% today to 21.4% in 3 years time.
• Analysts expect earnings to reach $837.3 million (and earnings per share of $3.65) by about April 2028, up from $270.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $731.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.2x on those 2028 earnings, down from 31.0x today. This future PE is greater than the current PE for the US Oil and Gas industry at 11.8x.
• Analysts expect the number of shares outstanding to decline by 1.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.9%, as per the Simply Wall St company report.

Range Resources Future Earnings Per Share Growth

Risks

• Scheduled processing maintenance in the second quarter may lead to a temporary drop in production, impacting short-term revenue and cash flow.
  
• Completion spending is set to increase over the next two quarters, which could initially lower free cash flow and affect short-term profitability due to higher capital expenditures before production ramps up in the second half of the year.
  
• The dependence on the development of infrastructure projects and new demand, such as data centers and power generation facilities, involves inherent uncertainties and regulatory risks, which could delay or impede expected increases in in-basin demand and revenue.
  
• Reliance on NGL exports and navigating potential tariff changes, especially if geopolitical conditions shift or tariffs are implemented, pose risks to maintaining premium pricing, impacting margins and profitability.
  
• The ambitious three-year production outlook to maintain 2.6 Bcfe per day with low capital expenditures relies on consistent efficiency improvements; any disruption in these improvements could lead to increased costs and affect net margins and cash flow.

Valuation

• The analysts have a consensus price target of $39.713 for Range Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $49.0, and the most bearish reporting a price target of just $22.55.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.9 billion, earnings will come to $837.3 million, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 6.9%.
• Given the current share price of $35.1, the analyst price target of $39.71 is 11.6% 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.