Is Range Resources Stock a Buy?

Despite recent initiatives for renewable energy, the demand for natural gas has stayed strong. As a major independent US natural gas producer, Range Resources Corp (NYSE: RRC) has drawn increasing interest from investors due to its massive land holding in the country’s largest natural gas field.

Over the past 5 years, the stock has increased by over 100%. Still, Range Resources shares have fallen off from their 52-week high of $36.38, but the stock has rallied from a low of around $22, and is up 34% year-to-date.

The rally was driven by the company’s revenue beats in the second quarter. But Range Resources has consistently delivered solid profits and modest dividends, and it has proven it can generate revenue, even during tough times for the gas and oil industry.

Even though the company outperformed revenue estimates, Range Resources’ revenue is well below 2022’s revenue. And the stock’s exceptional returns have caused many investors to fear that the stock is overvalued, and destined for a downturn.

So is Range Resources a buy?

Range Resources Owns 1,000,000+ Acres in PA Alone

The company was founded in 1976 as Lomak Petroleum, and Range Resources drilled its first wells in eastern Ohio. In 1992, the company moved to its current headquarters in Ft. Worth, TX. After multiple acquisitions over the years, Range Resources now has over 500 employees and a market capitalization of $7.54 billion.

The company drilled in Ohio and Texas, but Range Resources had the most success in Appalachia.

In 2004, the company pioneered drilling operations in the Marcellus Formation, also known as the Marcellus Shale, in Pennsylvania. This sedimentary rock formation has become the largest natural gas field in America.

Range Resources now owns over a million net acres in Pennsylvania. A 2010 Forbes article called the company “The King of Marcellus Shale,” and documented how Range Resources’ early discovery of gas there led to a massive windfall.

RRC was able to purchase land for $1,000 an acre that sold for $14,000 an acre after the gas discovery.

The land value alone has skyrocketed in recent years, but the company doesn’t plan to sell. The Marcellus shale gives Range Resources the most efficient opportunity to repeatedly source natural gas. Despite the company’s extensive operations in the area, RRC estimates there are still over 3,100 un-drilled wells in the region.

Range Resources Targeting 7.2 Trillion Gas Reserves

Natural gas is a fossil fuel that builds up in pockets in the earth. While there has been extensive drilling and natural gas operations, the US Energy Information Administration estimates there are around 7,257 trillion cubic feet of natural gas in the earth.

Natural gas is used as a fuel for stoves and heaters, that’s only a small percentage of America’s gas consumption. Around 38% of natural gas is burned by power stations to create electricity for homes and businesses. 32% of America’s natural gas is used in industrial applications.

The drive for sustainability has had a major impact on the company’s core values. Range Resources is working to be Net Zero Scope 1 and Scope 2 Green House Gas Emissions by 2025.

Range Resources Beat Analysts Estimates

The company released its second quarter of 2023 results on July 26, and the company’s total revenue of $637 million beat estimates by 7.42%. But that was a 48% decrease from Range Resources’ total revenue of $1.2 billion in 2022.

The company’s management was quick to point out that the decreases were due to cyclical demand, not a long-term downtrend.

Range Resources’ net income of $30 million was also a marked decline from 2022, and led to a diluted EPS of $0.12. Despite the revenue and profit decline, the company had $187 in cash flow from operations.

In spite of reduced profits, Range Resources has paid a dividend to its shareholders since 1995. The current annual dividend yield of 1.02% may not excite many investors, but it does amount to a $0.08 per share quarterly dividend.

The company’s P/E ratio is 4.55. Compared to the Oil & Gas Industry which is trading 7 times above earnings, it’s a positive sign that RRC stock may still be undervalued at this price point.

Majority of Analysts Rate RRC a Buy

Due to the company’s long history of outperforming the market, many analysts have weighed in on RRC’s future.

13 out of 28 analysts believe the stock is a buy, with 1 analyst predicting RRC will outperform the market over the next 12 months. The most bullish forecast has the stock rising 53.6% to $48.

12 analysts believe the stock is a hold, with the median forecast predicting the stock will trade over 5% higher to $33 over the next 52 weeks.

There are 3 sell ratings on RRC, with one of those analysts predicting the stock will underperform the market. The most bearish estimate for the stock has it dropping 36% to $20.

Is Range Resources Stock a Buy?

Range Resources is a natural gas producer that richly benefited from the early discovery of the Marcellus Shale natural gas field in Pennsylvania. The company owns over a million acres of natural gas-rich land and it’s continuing to drill and distribute gas across the US.

Despite the fact that earnings were drastically down from last year, the company was able to beat recent estimates and continue to deliver profits and dividends even in times when demand fluctuates. Expectations are that natural gas demand will continue forward over the next few years.

Despite concerns that the stock may be reaching overvaluation, there are plenty of reasons to buy into RRC. The company has a long history of success and pays a dividend. And the fact that the stock is currently trading off of its 52-week high is proof that RRC still has room to reward its investors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.