Natural Gas: Upside Potential Outweighs Bearish EIA Report

Natural Gas: Upside Potential Outweighs Bearish EIA Report

The U.S. Energy Department’s weekly release showed a higher-than-expected increase in natural gas supplies. Despite the bearish inventory numbers, the low stockpile levels and consistent liquefied natural gas (“LNG”) feedgas deliveries mean that the fuel’s prices will remain favorable in the short and medium term.

EIA Reports a Build Bigger Than Market Expectations

Stockpiles held in underground storage in the lower 48 states rose by 49 billion cubic feet (Bcf) for the week ended Aug 6 compared to the guidance of a 44 Bcf addition per the analysts surveyed by S&P Global Platts. The increase was also above the five-year (2016-2020) average net build of 42 Bcf but came below last year’s addition of 55 Bcf for the same corresponding week.

The latest injection puts total natural gas stocks at 2,776 billion cubic feet (Bcf), which is 548 Bcf (16.5%) below the 2020 level at this time and 178 Bcf (6%) lower than the five-year average.

Total supply of natural gas averaged 97.9 Bcf per day, edging down 0.3% on a weekly basis due to a slight decrease in dry production and lower shipments from Canada.

Meanwhile, daily consumption rose 1.2% to 90.6 Bcf from 89.5 Bcf in the previous week, primarily due to a higher power burn (or cooling usage) and stronger demand from the residential/commercial sector, partly offset by deceased LNG deliveries.

Natural Gas Registers a Weekly Decline

Natural gas prices trended downward last week following the higher-than-expected inventory build. Futures for September delivery ended Friday at $3.86 per million British thermal units (MMBtu) on the New York Mercantile Exchange, falling 6.7% from the previous week’s closing. The decrease in the price of natural gas is also the result of subdued cooling demand with peak summer drawing to a close. Besides, declines in LNG feedgas consumption in the export facilities played spoilsport.

Wrap-Up

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models are anticipating moderate temperature-driven consumption, after which prices have gone down. Nevertheless, the commodity’s medium-term outlook continues to be favorable.

For starters, the low stockpile levels — well below normal for this time of the year — have been supporting the price of the energy commodity with the apprehension that the market might enter the winter withdrawal season with supply shortage. Secondly, despite the odd hiccup, LNG export is likely to stay healthy for the foreseeable future, providing a further boost to U.S. natural gas futures. Consequently, the scenario for the primary U.S. power plant fuel is expected to be healthy. In fact, natural gas broke the $4 threshold late last month and recently jumped to its highest since December 2018.

Overall, given natural gas’ fundamental set-up, prices are expected to stay strong. This should aid gas-weighted producers like Southwestern Energy Company SWN, Cabot Oil & Gas Corporation COG and Range Resources Corporation RRC. Southwestern Energy and Cabot sport a Zacks Rank #1 (Strong Buy), while Range Resources carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Southwestern Energy churns out in excess of 1 trillion cubic feet equivalent annually, 80% of which is natural gas. It focuses on growth through a combination of acquisitions and active drilling. Last year, Southwestern bought Montage Resources, which boosted its Appalachian Basin footprint with the high-return Marcellus and Utica assets. In June, the company agreed to purchase private natural gas producer Indigo Natural Resources to further expand its reach in the Haynesville and Bossier shale plays of northern Louisiana. Over 30 days, this natural gas powerhouse has seen the Zacks Consensus Estimate for 2021 increase 7.5%.

Cabot is an independent gas exploration company with producing properties mainly in the continental United States. The company owns around 175,000 net acres in the dry gas window of the Marcellus play. Cabot boasts of one of the strongest balance sheets among the natural gas-focused E&P group. The company’s total assets are almost double that of its total liabilities, reflecting safety regarding debt payments, robust financing power and the ability to increase stock repurchases. Over 30 days, this 100% natural gas producer has seen the Zacks Consensus Estimate for 2021 increase 21%. Investors should know that Cabot recently raised its quarterly dividend by 10% for its sixth hike since May 2017.

Range Resources — among the top 10 natural gas producers in the United States — has a strong footing in the prolific Appalachian Basin. In the gas-rich resource, the upstream firm has huge inventories of low-risk drilling sites that are likely to provide production for several decades. Over 30 days, Range Resources has seen the Zacks Consensus Estimate for 2021 increase 20.5%. Natural gas contributed 68.9% to the company’s latest quarterly production.

For natural gas operators like Comstock Resources CRK, Antero Resources AR and EQT Corporation EQT, investors should preferably wait for a better entry point before buying their shares. All the companies carry a Zacks Rank #3 (Hold).

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Cabot Oil & Gas Corporation (COG) : Free Stock Analysis Report

Comstock Resources, Inc. (CRK) : Free Stock Analysis Report

Range Resources Corporation (RRC) : Free Stock Analysis Report

EQT Corporation (EQT) : Free Stock Analysis Report

Southwestern Energy Company (SWN) : Free Stock Analysis Report

Antero Resources Corporation (AR) : Free Stock Analysis Report

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FibroGen, Inc. (NASDAQ:FGEN) Analysts Are More Bearish Than They Used To Be

The analysts covering FibroGen, Inc. (NASDAQ:FGEN) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

Following the downgrade, the most recent consensus for FibroGen from its ten analysts is for revenues of US$269m in 2021 which, if met, would be a sizeable 56% increase on its sales over the past 12 months. Per-share losses are expected to creep up to US$2.63. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$330m and losses of US$1.37 per share in 2021. So there’s been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

NasdaqGS:FGEN Earnings and Revenue Growth August 16th 2021

The consensus price target fell 13% to US$21.57, implicitly signalling that lower earnings per share are a leading indicator for FibroGen’s valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic FibroGen analyst has a price target of US$30.00 per share, while the most pessimistic values it at US$14.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. The analysts are definitely expecting FibroGen’s growth to accelerate, with the forecast 144% annualised growth to the end of 2021 ranking favourably alongside historical growth of 5.5% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 10% per year. Factoring in the forecast acceleration in revenue, it’s pretty clear that FibroGen is expected to grow much faster than its industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. With a serious cut to this year’s expectations and a falling price target, we wouldn’t be surprised if investors were becoming wary of FibroGen.

With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for FibroGen going out to 2023, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.