Operational Excellence And NGL Exports Will Ensure Future Success

Key Takeaways

• Efficient operations and low capital intensity ensure profitability, supporting stable earnings and free cash flow generation.
  
• Strategic investments and international marketing could drive revenue growth and higher future earnings per share.
  
• Continued low natural gas prices and export constraints could impact Range Resources' profitability, while geopolitical shifts and rising interest rates pose additional risks.

Catalysts

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

• Range Resources' ability to market ethane, propane, and butane into international markets is expected to drive continued premium pricing for its NGL products, which could positively impact future revenue and margins.
  
• Range's efficient operations with low capital intensity and declining base decline rates suggest sustained through-cycle profitability, supporting stable earnings and free cash flow generation.
  
• The strategic investment in land and gathering infrastructure enhances capital efficiency and builds additional well inventory, providing options for future production growth, which could lead to increased revenue.
  
• As LNG export capacity increases and domestic natural gas demand grows, Range is well-positioned to capitalize on additional production opportunities, potentially boosting future earnings.
  
• The commitment to using a single completion crew while maintaining high production levels indicates operational excellence, enabling Range to achieve modest growth efficiently, which could contribute to higher future earnings per share.

Range Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Range Resources's revenue will grow by 13.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.4% today to 22.0% in 3 years time.
• Analysts expect earnings to reach $744.6 million (and earnings per share of $3.28) by about December 2027, up from $476.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $884 million in earnings, and the most bearish expecting $510 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.3x on those 2027 earnings, down from 17.3x today. This future PE is greater than the current PE for the US Oil and Gas industry at 10.9x.
• Analysts expect the number of shares outstanding to decline by 2.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.38%, as per the Simply Wall St company report.

Range Resources Future Earnings Per Share Growth

Risks

• There is a risk of continued low natural gas prices, which could impact Range Resources' ability to maintain profitability and generate free cash flow. This could negatively affect revenue and earnings.
  
• The company's high reliance on NGL exports through the Marcus Hook facility may face constraints if domestic export capacity issues arise. This could affect revenue from NGL sales.
  
• The need to maintain a flat production level with only one electric frac crew could limit Range Resources' ability to respond to sudden changes in market demand, potentially impacting future revenue and growth.
  
• Potential changes in geopolitical or regulatory environments, especially concerning international trade and export markets, could impact NGL pricing and demand, affecting Range Resources' margins and revenues.
  
• Rising interest rates or access to capital markets could affect the company's ability to manage or refinance its debt efficiently, impacting both financial flexibility and net margins.

Valuation

• The analysts have a consensus price target of $35.27 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 $45.0, and the most bearish reporting a price target of just $22.13.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.4 billion, earnings will come to $744.6 million, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 7.4%.
• Given the current share price of $34.15, the analyst's price target of $35.27 is 3.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.