Natural gas prices have been on fire in recent weeks. A cold snap at the end of last year fueled heating demand, which helped burn storage levels down below normal. Meanwhile, with more cold weather expected this month, it has the potential to further power demand for gas.
That said, while the price of natural gas has been red hot, several natural gas stocks went down in flames this week. Leading producers Chesapeake Energy (CHKA.Q), Eclipse Resources (NYSE: ECR), Gulfport Energy (GPOR), Southwestern Energy (SWN 2.71%), and Ultra Petroleum (UPL) all tumbled more than 15%. Here's a look at what fueled this sell-off and which, if any, of these gas stocks are worth buying now.
Tapping on the brakes
Gulfport Energy suffered the most this week, falling nearly 24%. The main culprit was its fourth-quarter update and guidance for 2018. The natural gas driller noted that production in the fourth quarter was up a remarkable 61% versus the prior year and 5% higher than the third quarter. That put full-year output up more than 51%, fueled in part by the acquisition of some land in Oklahoma's fast-growing shale region. However, Gulfport noted that production in 2018 would only rise 15% to 19%. That's because the company expects to keep spending to within cash flow, while also planning to buy back $100 million of its stock.
Eclipse Resources also fell sharply this week after unveiling its plans for 2018, which sank shares 15%. In Eclipse's case, it noted that not only was production in 2017 below the low end of its guidance range, but that it wouldn't grow nearly as fast in 2018. In fact, after output surged 36% last year, the company only expected it to increase 8% to 14% in 2018.
Changes at the top, in the middle, and of opinion
Chesapeake Energy, meanwhile, made headlines this week after announcing that it is trimming 13% of its workforce. That's after the company sold off more than 25% of its wells over the past two years to raise cash so it could shore up its balance sheet. While this move will save Chesapeake Energy money in the long run, investors sold shares off this week, sending them down 16%.
Ultra Petroleum also had some workforce-related news this week after longtime CEO Michael Watford announced that he'll be retiring at the end of this month. Watford led Ultra Petroleum for the last 19 years but will turn the company over to its senior vice president of operations. In addition to that, Ultra Petroleum announced several operational updates, including reaffirming that its fourth-quarter output would meet its guidance. This news weighed on Ultra Petroleum's stock this week, sending shares down 23%.
Finally, Southwestern Energy slumped 19% after several analysts downgraded its stock. Goldman Sachs cut its rating from neutral to sell and trimmed its price target from $5 to $4.50 per share. The investment bank did so citing Southwestern's lack of differentiated growth and returns versus its natural gas producing peers. Furthermore, Goldman believes that oil-focused peers have more upside than Southwestern Energy because crude prices are now higher. Meanwhile, Raymond James also downgraded Southwestern's stock, cutting it from market perform to underperform citing a bearish outlook on natural gas.
Why bother with these natural gas stocks when there are better ones out there
All five of these natural gas stocks either reported disappointing growth forecasts or seem to have dimmer outlooks than peers. That's why this week's sell-off doesn't seem to be a buying opportunity, because these companies could continue falling further behind stronger rivals. Instead, investors should focus their attention on the top natural gas stocks, since they offer premium growth prospects (and one stands above the rest due to its compelling combination of fast-paced growth and a dirt cheap price).