Why Southwestern Energy Stock Has Seen a Sell-Off



Southwestern Energy’s sell-off

Southwestern Energy (SWN) stock has fallen over 9.0% in the last one week. Last week, SWN’s stock made three attempts to regain its 200-day moving average but failed to move above it. The failure to move above its 200-day moving average caused a steep sell-off in SWN where SWN’s stock fell five days in a row. This sell-off took SWN below its 50-day moving average. As of December 12, SWN’s 50-day and 200-day moving averages stand at $5.91 and $6.35, respectively, whereas SWN is trading at $5.54. Year-to-date in 2017, SWN’s stock is down by a whopping ~49%.

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High debt and lower production

As of September 30, 2017, Southwestern Energy has a total debt of ~$4.4 billion, which is a key concern for investors. Despite SWN’s debt reduction measures, its total debt-to-equity ratio, or leverage, is very high at around 269%.

In comparison, SWN’s peers in the Marcellus Shale like CONSOL Energy (CNX) and Range Resources (RRC) have total debt-to-equity ratios of ~65% and ~72%, respectively.

Due to the high level of debt, SWN has less financial flexibility. Thus, it is trying to achieve production growth by investing within cash flows. SWN’s 3Q17 production of 232 Bcfe (billion cubic feet equivalent) is still ~7% below its peak production of 249 Bcfe (billion cubic feet equivalent) in 4Q15.

Natural gas and crude oil on the decline

Another factor that’s negatively affecting SWN stock is the falling prices of natural gas (UNG) and crude oil (USO). In the last one week, natural gas prices fell strongly from $2.91 per MMBtu (million British thermal units) to $2.68 per MMBtu. As of December 12, natural gas prices are trading not too far from their 52-week low of $2.64 per MMBtu. Even crude oil prices are down by ~0.8% in the last one week.

Due to lower energy prices in the last week, the First Trust Natural Gas ETF (FCG) fell ~0.8%. XLE underperformed the SPDR S&P 500 ETF (SPY) in the last one week, which rose ~1.4%.

In the next part, we’ll look at SWN’s correlation coefficient with natural gas prices.


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