Natural gas downtrend
Due to the continuous buildup in natural gas (UNG) (UGAZ) inventories in the US, natural gas prices have been in a steep downtrend. Higher production levels from natural gas producers and weak demand during the recent mild winter have dragged down natural gas prices even further.
Meanwhile, the lower-for-longer trend in natural gas prices we’ve seen in the past two years has driven natural gas to decline by ~72% and has taken its toll on producers. Remember, when natural gas prices are in decline, cash margins for natural gas producers feel the burn.
Range Resources’ (RRC) stock price is currently in a downtrend, making a clear pattern of lower highs and lower lows. This is clearly due to steep reductions in earnings from lower natural gas prices. The downtrend has been so severe, in fact, that Range Resources’ stock price broke its 200-day moving average from July 2014.
RRC tried to regain its 200-day moving average in April 2015 but failed. But in April 2016, the stock regained its 200-day moving average and currently trading ~9% above it.
In recent months, Range Resources has shown a better relative strength than many other upstream stocks, which we’ve seen in its rise of ~102% since January 2016.
Other large oil and gas producers in the S&P 500 (SPY) include Occidental Petroleum (OXY), EOG Resources (EOG), and Pioneer Natural Resources (PXD), whose stocks have risen by ~29%, ~36%, and ~49%, respectively.
In 1Q16, excluding the one-time items, Range Resources reported a loss of $0.55 per share, which is $0.36 lower than the consensus of $0.19 loss per share. Due to lower realized natural gas prices, RRC’s revenues fell by ~24% year-over-year to ~$331 million.
But what do these headline numbers really mean? Are they good or bad for Range Resources? Will the company’s stock price ever cross its 200-day moving average?
We’ll answer all these questions in this series by analyzing Range Resources’ earnings, past events, various fundamental ratios, and key drivers for the stock.
Let’s start with the company’s 1Q16 earnings call.