Southwestern Energy: A low-profile gem

Posted Dec 10th 2009 4:15PM by Joseph Lazzaro
Filed under: Oil, Stocks to Buy

Natural gas/oil play Southwestern Energy's (SWN) uptrend has been milder-than-expected, but investors should view it as an opportunity to scoop-up shares, so I'm reiterating my buy rating for the company, first recommended on June 5, 2009 at a price of $42.38. Here's why:

Southwestern is a cream-of-the-crop play, due to its projected, large increases in production for the immediate years ahead, and its low-cost producer status. Hence, when combined with likely rising natural gas prices, Southwestern should experience large increases cash flow and earnings: SWN is one of the best, low-profile energy companies in the U.S.

The First Call FY2009/FY2010 EPS estimates for SWN are $1.50 to $2.33. That $2.33 FY2010 EPS estimate will likely prove to be low.

Technically, a potential double top was removed when SWN pierced psychological resistance at $50 earlier this fall. Shares have since retreated about $10, and fallen below the key, 50-day moving average, but the calculation here is that the latter represents year-end profit-taking by selected short-term institutional investors (IIs): SWN traded below $25 earlier this year. Hence, view the pull-back as a buy opportunity.

Stock Analysis: Southwestern Energy is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in SWN now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your SWN position before February 2010. Sell/stop loss if you were to buy shares in this company: $17.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: oil companies, OilCompanies, southwestern energy, SouthwesternEnergy