Comstock Resources: A Shale Play with Upside in the Haynesville

The energy sector has long been a battlefield of volatility, but for investors seeking undervalued opportunities, Comstock Resources (NYSE:CRK) is emerging as a compelling story. Recent upgrades from Wolfe Research, coupled with strategic moves in the Western Haynesville shale play, suggest the company could capitalize on a confluence of factors—from rising natural gas prices to untapped geological potential. Yet, conflicting signals from broader analyst sentiment and financial metrics demand scrutiny. Here's why a strategic long position in CRK may still be warranted.

The Wolfe Upgrade: A Vote of Confidence in Underrated Assets

On June 17, 2025, Wolfe Research raised Comstock's rating to Outperform, setting a $34 price target—a 20% premium to its June 19 closing price of $28.87. This upgrade underscores a shift in perception of CRK's strategic land positions in the Western Haynesville, where the company is targeting deeper formations like the Cotton Valley Lime (CVL). Analysts highlighted Comstock's leadership in proving the commercial viability of these areas, where improved drilling technology has unlocked EURs (Estimated Ultimate Recoveries) of 3–4 billion cubic feet per 1,000 feet. With over 2,000 drilling locations identified, this inventory alone positions CRK to sustain growth for years.

The Catalyst: Haynesville's Next Chapter and Natural Gas Prices

The Haynesville Basin has been a cornerstone of U.S. natural gas production, but the Western segment remains underdeveloped. Comstock's focus here is critical because:
- Geological upside: The CVL's thicker, higher-pressure formations could reduce per-unit costs and boost profitability as gas prices rise.
- Cost discipline: The company plans to fund its 2025 drilling program (20 wells, 15 turn-to-sales) via operating cash flow, avoiding dilutive financing.
- Gas price tailwind: With the U.S. Henry Hub natural gas price hovering near $3/MMBtu—up 25% year-to-date—and global demand for LNG exports growing, CRK's production could see margin expansion.

Navigating the Risks: Liquidity and Analyst Skepticism

No investment is without risks. Comstock's current ratio of 0.4 signals liquidity constraints, and its Q1 2025 production dipped 17% YoY as it prioritized capital efficiency over volume growth. Meanwhile, the broader analyst community remains cautious: the average price target of $20.40 implies a 29% downside, and the Zacks #3 ("Hold") rating reflects skepticism about near-term execution.

Yet, two countervailing trends offset these concerns:
1. Institutional buying: Ownership by 534 funds—a 12% QoQ increase—suggests professional investors are accumulating shares.
2. Operational resilience: Despite production cuts, Q1 results beat estimates (EPS $0.18 vs. $0.14; revenue $512.8M vs. $418M), with operating cash flow jumping to $239M.

Why a Long Position Makes Sense Now

The Wolfe upgrade isn't just about today's metrics—it's about geological leverage. If Comstock's CVL wells deliver on EUR expectations, the company's proved reserves could surge, justifying a valuation closer to its $34 target. Meanwhile, the inexpensive entry point (current valuation implies a 59% downside per GuruFocus, but this may underprice Haynesville's potential) creates a favorable risk/reward profile.

Investors should also monitor carbon capture partnerships, such as its deal with BKV Corporation, which could unlock regulatory credits or ESG-driven demand.

Final Take: Buy the Dip, Play the Cycle

While risks like liquidity and analyst skepticism linger, Comstock's strategic positioning in the Haynesville's next frontier offers asymmetric upside. The Wolfe upgrade signals a turning point in sentiment, and with natural gas prices poised to rise, CRK's asset base is primed to shine.

Recommendation: Accumulate CRK on dips below $28, with a 12–18 month horizon. The $34 target represents a compelling 20% upside, while institutional buying and operational momentum suggest the stock is nearing a valuation inflection point.

In a market hungry for growth stories, Comstock's blend of undervalued assets and technical differentiation makes it a buy—and a bet on the shale industry's next chapter.