Southwestern Is Down 40% in 2019: What about 2020?

So far in 2019, Southwestern Energy (SWN) has fallen around 40%, while the Energy Select Sector SPDR Fund (XLE) has gained 4.2%. The energy sector has been an underperformer. Weaker oil and natural gas prices are behind the plunge in energy companies’ stock prices.

Southwestern’s earnings

Southwestern reported positive adjusted earnings in the first three quarters of 2019. However, peers such as Chesapeake Energy (CHK) reported negative earnings in the second and third quarters. On a sequential basis, Southwestern’s total production fell 19%, 21%, and 20%, respectively, in the first three quarters of 2019. To learn more, read Southwestern Energy: Could Winter Be Coming?

History could repeat itself

Between the fourth quarter of 2015 and the second quarter of 2016, SWN’s adjusted EPS were negative. Oil prices were then devasted by US and Saudi Arabian producers’ shale oil market share fight. Higher oil supplies in the US also resulted in a natural gas glut.

The same situation could repeat itself. However, this time OPEC+’s output cut decision could give US shale oil producers space to increase their outputs. Oil prices could move higher but natural gas producers such as SWN could be affected. Read 2020’s Natural Gas Outlook: Winter Is Coming to learn more.

In the third quarter of 2019, SWN’s production mix in natural gas was 79.4%. Natural gas sales contributed 36.2% to its top line in the third quarter. Analysts’ consensus estimate projects Southwestern’s fourth-quarter adjusted EPS to be $0.11. In addition, SWN’s midstream income could be affected by energy commodity prices.

Kinder Morgan (KMI), one of the largest US pipeline operators, reduced its capex amid lower commodities prices. To learn more, read Kinder Morgan’s 2020 Outlook Is Attractive.

Analysts’ views on Southwestern

According to Reuters data, 80% of the 25 analysts tracking SWN have “hold” recommendations. and 20% recommended “sells.” Notably, no analysts have “buys” or “strong buys” on the stock. As we’ve seen, the bearish sentiment for SWN could continue into 2020. It could rise by 22.7% based on analysts’ mean price target.

SWN’s moving averages

Yesterday, SWN closed 1.9%, 0.5% and 0.7% above its 20-day, 50-day, and 100-day moving averages, respectively. But SWN was 30.1% below its 200-day moving average. Going forward, its 50-day moving average level of $2 will be an important support zone for it. Moreover, its 200-day moving average level of $2.94 will be a strong resistance zone for it.

On Monday, SWN’s implied volatility was 85.6%. Based on this implied volatility, SWN could close between $1.82 and $2.23 until December 17 at a confidence interval of 68%. To learn more about this price model, please read Implied Volatility Suggests Oil Could Reach This Price Next Week.