Natural Gas Stocks: If This Is An Improvement, I'd Hate To See A Slump

DJ Natural Gas Stocks: If This is Improvement, I'd Hate to See a Slump -- Barron's Blog



  By Ben Levisohn

  Guggenheim's Subash Chandra and Marshall Coltrain "believe gas fundamentals are improving" but that didn't stop them
from cutting their earnings-per-share forecasts on Chesapeake Energy ( CHK), Cabot Oil & Gas ( COG), and Range
Resources ( RRC). They explain:


  We believe gas fundamentals are improving. The winter is hamstrung by high inventories and mild weather, but we
believe the current y-o-y storage surplus of 554 bcf will disappear by next autumn. The contango in the gas curve
should steepen with fundamentals supportive of $3+ natural gas by 4Q2016. Colder temperatures should expose improving
fundamentals as we continue to expect bullish withdrawals when weather is within 15% of normal.


  The reasons for our confidence are: 1) Our EPS revisions for a number of gas operators today suggest that gas supply
growth in 2016 could flatline, 2) EIA data for the summer of 2015 indicates 100% absorption of U.S. supply growth in
the power markets through coal displacement, 3) coal displacement should continue to occur at $3, 4) summer 2016
injections could be the lowest since 2012, despite assumptions for mild weather and recovery in hydro, and 5) supply
disruptions from tropical activity could increase after a mild 2015 subdued by El Ni??o.


  Still, Chandra and Coltrain cut their 2016 EPS forecast for Cabot Oil & Gas to a loss of 21 cents from a loss 11
cents, on Chesapeake Energy to a loss of 59 cents from a loss of 54 cents, Range Resources to a loss of 64 cents from a
loss of 33 cents. Their estimate for  Southwestern Energy ( SWN) goes up to a loss of 38 cents from a loss of 71 cents.

  Shares of Cabot Oil & Gas have dropped 4.7% to $15.25 at 1:13 p.m. today, while Chesapeake Energy has tumbled 8.5% to
$3.82, Range Resources has slumped 7.3% to $23.16, and Southwestern Energy has plunged 11% to $5.81.

 More at Barron's Stocks to Watch blog, http://blogs.barrons.com/stockstowatchtoday/http://blogs.barrons.com/stockstowatchtoday/">http://blogs.barrons.com/stockstowatchtoday/
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  (END) Dow Jones Newswires

  January 12, 2016 13:27 ET (18:27 GMT)

  Copyright (c) 2016 Dow Jones & Company, Inc.

011216 18:27 -- GMT
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