Texas-based independent energy company Southwestern Energy Company (SWN) explores, develops, and produces natural gas, oil, and natural gas liquids (NGLs). The company focuses on developing unconventional natural gas and oil reservoirs in Pennsylvania, Ohio, and West Virginia.

The stock gained 3.4% intraday to close yesterday’s trading session at $5.23. Shares of SWN soared 22% to hit their 52-week high on September 27. Moreover, the stock is currently trading above its 50-day and 200-day moving averages, indicating an uptrend.

The stock has been gaining momentum lately, driven by investors’ optimism over the red-hot energy sector and the record rally of natural gas prices. Earlier this week, natural-gas futures rallied more than 9% to post the highest finish in nearly 13 years. Moreover, natural gas futures broke through $6.000/MMBtu for the second time this week. However, analysts expect “extremely dangerous/volatile” price swings in the near term, “where entry and exit will be feast or famine,” if the supply struggle continues.

Here’s what could shape SWN’s performance in the near term:

Acquisition

Last month, SWN completed the acquisition of Indigo Natural Resources. “This acquisition materially expands our opportunity set, adding high-margin Haynesville production and substantial core drilling inventory while providing additional global market access through the LNG corridor,” said Bill Way, Southwestern Energy President and Chief Executive Officer. The company also expects this acquisition to increase its free cash flow and accelerate its deleveraging goals. SWN expects its free cash flow generation for 2021 to increase to $425 to $475 million and plans to use it for debt reduction.

Mixed Financials

For the second quarter that ended June 30, SWN’s net loss came in at $609 million, indicating a decline of 30.8% year-over-year. Its loss per share declined 44.8% from its year-ago loss to $0.90. Net cash provided by operating activities rose 187.2% from the same period last year to $270 million, while adjusted EBITDA increased 183% year-over-year to $300 million.

Bleak Long-term Growth Prospects

Analysts expect SWN’s revenues to increase 88.5% year-over-year to $4.35 billion in the current year. The consensus EPS estimate of $1.06 for the ongoing year indicates a 178.9% rise from the same period last year. SWN has a notable earnings surprise history, as it beat the consensus EPS estimates in three out of the trailing four quarters.

However, its long-term growth looks grim as analysts expect its EPS to decline 25% per annum over the next five years.

POWR Ratings Reflect Uncertainty

SWN has an overall grade of C, which equates to a Neutral rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The company has a Momentum grade of A, justified as the stock is currently trading above its 50-day and 200-day moving averages.

SWN has a grade of C for Quality. This is justified as SWN’s gross profit margin of 37.78% is 8.4% lower than the industry average of 41.24%.

Of the 89 stocks in the C-rated Energy - Oil & Gas industry, SWN is ranked #45.

Beyond what I have stated above, you can also view SWN’s grades for Value, Growth, Sentiment, and Stability here.

View the top-rated stocks in the Energy - Oil & Gas industry here.

Bottom Line

Driven by investors’ optimism on improving natural gas prices, SWN witnessed a solid rally over the past few weeks. However, the company’s weak bottom-line and lower-than-industry profitability make the stock’s prospects uncertain. Thus, investors should wait until the company’s profit margins improve before investing in it.

How Does Southwestern Energy Company (SWN) Stack Up Against Its Peers?

While SWN has an overall grade of C, you might want to consider investing in Energy - Oil & Gas stocks such as SilverBow Resources, Inc. (SBOW) and Apache Corporation (APA), which both have an overall grade of A (Strong Buy).

SWN shares were trading at $5.34 per share on Friday afternoon, up $0.11 (+2.10%). Year-to-date, SWN has gained 79.19%, versus a 18.34% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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