Range Resources Upgraded At Imperial Capital, Sees 25% Upside

Imperial Capital has upgraded Range Resources Corp. (NYSE: RRC) to Outperform from In Line on "brighter gas pricing outlook."

The brokerage has also raised the price target by $10 to $55, implying an upside of 25 percent from the recent share price.

"We believe that the recent improvement in natural gas pricing is not a fleeting event. Because production is 67 percent natural gas, we believe it is well positioned to benefit from stronger pricing, even if differentials take quarters to further improve," analyst Kim Pacanovsky wrote in a note.

The analyst noted that Range Resources has achieved low basis differentials in Appalachia and has strong well results in the Marcellus and some of the best dry Utica wells in the play.

"There are significantly greater factors supporting sustained strength in gas than supporting a return below $2.50/mmbtu, and obviously this bodes well for RRC. For every $0.10 increase in gas pricing, 2H16 EBITDA increases by $2.6 million (0.5 percent), and 2017 EBIDTA increases by $30 million (5 percent)," Pacanovsky continued.

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In addition, the company's $4.4 billion Memorial Resource Development merger "allows it to benefit from applying advances in horizontal drilling and completions to a relatively de-risked resource in early stage horizontal development." The company expects margins to increase by about $0.45/mcfe pro forma the Memorial merger.

Pacanovsky also raised 2016 EPS estimate to ($0.51) from ($0.52) and EBITDA estimate to $483.4 million from $478.8 million. Further, RRC's hedges lead to little movement in earnings and EBITDA for 2016.

Shares of Range Resources closed Wednesday's regular trading session at $44.09. Shortly after Thursday's opening bell, the stock was seen down 0.43 percent at $43.90.

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