Shares of independent natural gas operator Southwestern Energy Company (SWN) fell about 2% on the NYSE to slip to a 52-week low of $26.75 on Dec 31. The decline followed the company’s most recent announcement that it will increase its 2015 capital expenditure amid a weak natural gas pricing environment.
What Led to the Share Price Decline?
For the first time since Sep 2012, the price of natural gas fell below $3 per million Btu (MMBtu) representing an unfavorable pricing scenario for the commodity. This is owing to an expectation of lower customer demand for space heating based on National Oceanic and Atmospheric Administration’s forecast of mild winter weather. Excess supply of the commodity is also responsible for the price fall.
In the middle of a lower natural gas pricing situation, Southwestern Energy recently declared that it is willing to invest roughly $2.6 billion this year, up from the expected 2014 capital spending of about $2.4 billion.
However, Investors are not happy with the company’s aggressive capital spending plan given the weak pricing scenario. Increased investment will lead to a further rise in production in an already existing supply glut. This move is unlikely to be profitable for Southwestern Energy as the company will not be able to generate considerable cash flow by selling the commodity at low expected prices.
Investors’ disapproval is clearly reflected in the company’s recent 52-week low price.
Zacks Rank & Stock Picks
Currently, Southwestern Energy carries a Zacks Rank #3 (Hold).
Meanwhile, one can consider better-ranked players in the energy sector like Spectra Energy Partners LP (SEP), Seadrill Partners LLC (SDLP) and Cheniere Energy Partners LP (CQP). All these stocks sport a Zacks Rank #1 (Strong Buy).
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