On Wednesday, Wolfe Research adjusted its financial outlook for EQT Corp. (NYSE:EQT (ST:EQTAB)), a natural gas production company, reducing the price target from $47.00 to $46.00. The firm maintained its Outperform rating on the stock. This change in price target reflects a modest shift in the company's projected future cash flows and debt levels.
EQT Corp's stock performance has trailed behind its industry counterparts year-to-date (YTD), with a 2% decrease compared to the average Exploration & Production (E&P) company's 10% gain, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) which increased by 14%, and the S&P 500 index's 6% rise. Over the past twelve months, EQT's shares have seen a 17% increase, which is slightly below the E&P's average growth of 18% and significantly behind the XOP and S&P 500, both of which have grown by 23%.
Wolfe Research's revised price target is based on a 10% free cash flow (FCF) yield to total enterprise value, using EQT's forecasted $3,920 million in FCF for the fiscal year 2025, excluding hedges, and incorporating the year-end 2024 net debt to highlight the potential equity benefits from reducing debt. The calculation also deducts hedge losses to arrive at an equity value.
The analysis also took into account EQT's ongoing efforts to integrate the acquisition of ETRN and the anticipated $250 million in near-term synergies, which are expected to lower EQT's cash breakeven point. The company is also expected to benefit from third-party midstream earnings, which will contribute to lower gathering, processing, and transportation (GP&T) unit costs after the merger is finalized.
EQT has initiated the sale of assets to meet its target of over $5 billion in debt reduction following the merger. Notably, the company has already exchanged a portion of its non-operated Northeast Pennsylvania (NEPA) acreage for $500 million among various assets. Wolfe Research anticipates that EQT will continue to divest assets, including its stake in the Mountain Valley Pipeline (MVP) and the remaining non-operated NEPA acreage, which aligns with EQT's strategy to streamline operations and reduce costs.
The firm remains optimistic about EQT's prospects, especially as market conditions are expected to tighten by 2025, suggesting that EQT's position as a low-cost producer could lead to stronger performance relative to its peers.
InvestingPro Insights
As Wolfe Research updates its financial outlook for EQT Corp., investors can gain additional perspective through real-time data and insights from InvestingPro. Currently, EQT has a market capitalization of $17.4 billion and trades at a Price-to-Earnings (P/E) ratio of 25.49, with an adjusted P/E ratio for the last twelve months as of Q1 2024 at 22.64. Despite the challenging revenue growth seen over the last year, with a decrease of 67.16%, EQT has maintained a Gross Profit Margin of 35.56%.
InvestingPro Tips suggest that while analysts have revised their earnings estimates downwards for the upcoming period, they also predict the company will be profitable this year and note that it has been profitable over the last twelve months. This is in line with Wolfe Research's view that EQT's position as a low-cost producer could lead to a stronger performance relative to its peers. However, investors should be aware that the company is trading at a high revenue valuation multiple and that net income is expected to drop this year.
For those looking to delve deeper into EQT's financial health and future prospects, InvestingPro offers additional tips and metrics that could be crucial for making informed investment decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and unlock a total of 5 additional InvestingPro Tips for EQT. With the next earnings date set for July 24, 2024, staying informed with the latest data and insights from InvestingPro could be invaluable.
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