EUR 850.00 For Business Accounts Only

Morningstar | Range Continues to Focus on Debt Reduction in 1Q

We're leaving our $19 per share fair value estimate and no-moat rating for Range Resources unchanged following the release of first-quarter results. Range Resources increased production in the first quarter to 2.256 billion cubic feet per day, beating management's prior guidance for a 5% volume increase sequentially. Realized prices came down sequentially as the impact of low temperatures on natural gas prices faded. But a roughly 3% decline in cash unit costs helped to offset lower prices. We expect further cash unit improvements, particularly in transportation costs, where Range Resources has the opportunity to market additional volumes in the Marcellus.

Range Resources produced roughly $50 million in free cash flow in the first quarter, allowing for a similar reduction in the company's elevated debt level. Still, even with Range Resources' capital spending budget down markedly from 2018 levels, we think the company will need to leverage asset sales to accelerate debt reduction.

Range Resources trades considerably below our unchanged fair value estimate of $19 per share. Still, we'd urge caution. Range still has high financial leverage, leading to a wide discrepancy between our bull- and bear-case fair value scenarios, $33 per share and $6 per share, respectively. The resulting extreme uncertainty rating means, at the current share price, Range Resources is still trading in 3-star territory.