Despite new leadership and plans to save $150 million to $170 million annually via layoffs, an analyst team at J.P. Morgan Securities led by Arun Jayaram downgraded Southwestern Energy (SWN) to Neutral from Overweight on Tuesday.
While there were many reasons to downgrade the company earlier -- low energy prices and the potential of Southwestern's debt being downgraded -- Jayarum believed that the stock's valuation in mid-December was below that of the company's production and raised Southwestern's rating to Outperform at the time. That scenario has since "played out" and the company's recently announced cost-cutting plans are already reflected in its stock, Jayarum wrote.
Jayarum calculated a net asset value of $8.30 a share for Southwestern. The stock closed at $8.50 on Monday but fell 8% on Tuesday morning to $7.80 on downgrade news and continued concerns on energy prices.
Southwestern currently has nine Buy ratings, 22 Hold ratings, and three Sell ratings, according to analysts surveyed by Bloomberg. The company is expected to report earnings at the end of this month and analysts forecast it will report a loss of $0.04 per share on revenue of $763 million. In the fourth quarter of 2014, Southwestern reported adjusted earnings of $0.52 per share on revenue of $962 million.
Separately, Southwestern is rated D and garners a Sell rating from TheStreet's Quant Ratings service due to its deteriorating net income, high debt management risk, and weak operating cash flow.
Southwestern has not yet released its capital plan for 2016 but it is expected to do so when it reports earnings. Jayarum believes that the company will announce $820 million in capex spending in 2016, with nearly half of it going to interest and general expenses, and the rest toward drilling and completion.
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