Analyst Note| Stephen Ellis |
After incorporating fourth-quarter results and rolling our model, we are increasing our Range Resources fair value estimate to $9.25 from $5 per share. Our no-moat rating remains unchanged. Given Range's very high leverage, our fair value estimate can be quite sensitive to near-term oil and gas prices. As Range's leverage still remains high, our uncertainty rating remains extreme. The main drivers of our fair value increase are higher oil and gas prices ($1 per share) and higher expected activity and thus cash flows generated from Range's acreage ($3.25 per share). We currently expect Range's leverage to reach about 2 times in the first quarter of 2022 but not to remain below 2 times for any sustainable length of time. As Range is expected to generate substantial free cash flows, we believe the best course of action for the firm is to materially reduce leverage further and seek asset sales or drilling partnerships to expedite its path to a leverage ratio between 1-2 times on a sustainable (through the cycle) basis.