Stifel's Update on Antero Resources (AR) - July 3

[dan_s]

Antero Resources Corporation (AR, $5.27, Buy; Target $14.00)

Shorts Should Head for Cover by Jane Trotsenko at Stifel

"Mont Belvieu's NGL price per barrel is down 15% q/q in 2Q19. Based on our experience with quarterly positioning, investors would be inclined to short AR and RRC into the quarter on that NGL theme. Short-selling AR into the earnings could be quite risky, in our view, as we are projecting a production beat and very healthy natural gas price realizations.
Based on pipeline flows, AR should deliver at least 5% q/q production growth compared to Consensus modeling a slight production decline.
Additionally, we are also projecting a slight beat on natural gas price realizations. We believe that Consensus continues to use daily average natural gas prices for their price decks, which were $0.13/MMbtu lower than Henry Hub settled prices. Importantly, AR plans to provide a guidance update with its 2Q19 earnings, which makes this quarter particularly tricky. That said, we expect positive operational momentum to continue in this challenging macro environment."

I do expect AR to report a BIG mark-to-market gain on their hedges, which may raise a few eyebrows. Reported earnings should be way above the current First Call forecast of $0.06 EPS for Q2. AR is on-track to generate about $100 million of FCF from operations in 2019, which is locked in by hedges.
All four of the "gassers" in the Sweet 16 should be profitable in Q2 and for all of 2019 because of their hedges and very low operating expenses.- Dan

[dan_s]

"Our $14.00 target price is based on a 10% discount to our 4PNAV. Our target price includes Antero's proportional ownership of Antero Midstream shares at market value. The current price target is based on a Henry Hub price of $2.25/mcf and WTI price of $65/bbl." - Stifel's 7-2-2019 Update

AR's Q1 production mix = 71.3% natural gas, 26.5% NGLs and 2.2% crude oil. With all of their natural gas hedged, they have more exposure to crappy NGL prices.

My valuation is $16.00/share, which compares to First Call's price target of $11.13.

If you'd like to see the full report from Stifel, send me an email: dmsteffens@comcast.net