What peer analysis says about Southwestern Energy’s valuation

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How Southwestern Energy compares

So far in this series, we’ve looked at Southwestern Energy Company’s (SWN) valuation metrics in isolation over the years. Now, let’s find out where SWN stands when compared to its ten closest peers in the industry.

SWN2 - P10

Growth

In terms of revenue and earnings growth over various time periods, SWN stands head and shoulders above its closest peers and the broad markets. This is a clear point in favor of the company.

Profitability

SWN’s gross margins are close to those of its peers, but higher than those of the broader market. The company’s earnings before interest, taxes, depreciation, and amortization, or EBITDA, margin is higher than its peers’, and well above that of the broader market.

In terms of operating margin—the ability to generate profits from operations—SWN really shines. Its operating margin stands above those of its peers, and well above that of the broader market.

At the earnings level—return on equity, or ROE—while SWN does better than its peers and the broader market on a trailing 12-month basis, it lags behind its peers in terms of analyst expectations for its immediate future.

Debt ratios

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Even as SWN increased its debt in the last few years, its levels compared to those of its peers and the broader market remains relatively lower. This is particularly evident in its lower debt-to-enterprise value ratio. Indeed, SWN’s operational superiority stands out in terms of substantially higher interest coverage—EBITDA-to-interest. Its debt levels as a proportion of its total capital are broadly in line with those of the broader market and its peers.

Valuation

Now, given all that we’ve learned about SWN, the fact that it trades at a discount to its peers on various valuation metrics means it’s very likely that the company’s undervalued by the market—the victim of undeserved pessimism.

Key peers and ETFs

Companies in the same industry with similar business models can perform very differently in the market. That’s why an ETF such as the iShares Dow Jones US Energy Sector ETF (IYE) is a great way to gain diversified exposure to a basket of American energy companies including Chesapeake Energy Corporation (CHK), Range Resources Corp. (RRC), and Murphy Oil Corporation (MUR).

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