EQT - EQT: The Low-Cost Gas Producer Is A Buy
2024-02-16 10:56:56 ET
Summary
- EQT Corp. is a low-cost US natural gas producer and the largest independent producer in the country.
- The company exceeded expectations in Q4 2023, producing more natural gas than anticipated with CAPEX below expectations.
- EQT has a strong balance sheet and a solid hedge book allowing it to handle current low gas prices.
- Based on EQT's best-of-breed cost structure and current NYMEX calendar strip pricing for gas, I see EQT generating $3 billion in free cash flow annually by 2026.
- My discounted cash flow target for EQT is $50 based on a 9% discount factor.
I’ve written about several US natural gas focused exploration and production (E&P) companies on Seeking Alpha in recent months including a bearish piece on Comstock Resources ( CRK ) back on January 22 and a bullish article on Southwestern Energy ( SWN ) in early December.
My approach to evaluating E&Ps is straightforward.
First, I construct a production, cost and free cash flow model based on historic results and management’s latest guidance. This model estimates the level of gas prices a producer requires to cover all its costs and generate excess cash flow – basically a cash flow breakeven.
I then estimate a particular producer’s ability to generate cash over time based on current futures market pricing.
Third, I estimate longer-term free cash flow potential and derive a discounted cash flow ((DCF)) target for the stock.
This is the most exciting time of the year for E&P investors because most firms update their guidance and strategy outlook for the year ahead when they release their fourth quarter earnings results. After the market close on Tuesday, February 13, EQT Corp. ( EQT ) did just that and management’s latest guidance serves to underline the company’s status as a low-cost US producer....
EQT: The Low-Cost Gas Producer Is A Buy