Range Resources Corp (RRC, Financial) experienced a daily gain of 2.14%, and a 3-month gain of 14.93%. With an Earnings Per Share (EPS) (EPS) of 6.87, the question arises: is the stock significantly overvalued? This article aims to delve into the valuation analysis of Range Resources, providing readers with a comprehensive understanding of the company's financial position.
Company Overview
Fort Worth-based Range Resources Corp (RRC, Financial) is an independent exploration and production company that solely focuses on its operations in the Marcellus Shale in Pennsylvania. As of the end of 2022, the company's proved reserves totaled 18.1 trillion cubic feet equivalent, with net production of 2.1 billion cubic feet equivalent per day. Natural gas accounted for 70% of production. The company's stock price currently stands at $32 per share, while the estimated fair value (GF Value) is $20.93, suggesting a significant overvaluation.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from a unique method that takes into account historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on the summary page provides an overview of the fair value at which the stock should ideally be traded.
Based on this calculation, Range Resources (RRC, Financial) stock is significantly overvalued. With a market cap of $7.70 billion at the current price of $32 per share, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. To avoid this, it is crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Range Resources has a cash-to-debt ratio of 0.09, ranking worse than 81.34% of 1029 companies in the Oil & Gas industry. With an overall financial strength of 6 out of 10, Range Resources exhibits fair financial health.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, generally poses less risk. Range Resources has been profitable 5 times over the past 10 years. In the past twelve months, the company had a revenue of $4.10 billion and an Earnings Per Share (EPS) of $6.87. Its operating margin is 46.56%, ranking better than 88.48% of 981 companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of Range Resources at 7 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. Range Resources's 3-year average revenue growth rate is better than 80.42% of 858 companies in the Oil & Gas industry. However, its 3-year average EBITDA growth rate is 0%, ranking worse than all other companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to evaluate its profitability. Over the past 12 months, Range Resources's ROIC was 23, while its WACC came in at 8.72, indicating that the company is creating value for shareholders.
Conclusion
In conclusion, Range Resources (RRC, Financial) stock is estimated to be significantly overvalued. The company's financial condition is fair, and its profitability is also fair. However, its growth ranks worse than all other companies in the Oil & Gas industry. To learn more about Range Resources stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
