Antero Resources (AR) Update - July 21

[dan_s]

At the time of this post AR is trading for $13.90 per share. My valuation is $25.00.

Over the last 30 days three analysts have updated their forecasts and price targets for AR. Keep in mind that ngas price have moved a lot higher this week.
> On 6/29/2021 Aaron Bilkoski at TD Securities rated it a Buy with a price target of $18.50
> On 7/7/2021 Nitin Kumar at Wells Fargo rated it a Buy with a price target of $17.00
> On 7/13/2021 Vincent Lovaglio at Mizuho Securities rated it a Hold with a price target of $19.00 < How is a HOLD justified on a stock trading at such a large discount to your valuation???

For Q1 2021 Antero's realized natural gas price net of regional differentials and cash settlements on their hedges was $3.56/mcf. How is this possible when the Company has ~92% of their dry gas hedged for $2.76/MMBtu in 2021?
> Antero sells their gas into the physical market at posted prices. They get a $0.10 to $0.20 per mcf premium because their gas has a high BTU content.
> Physical market prices spiked in February because of Winter Storm Uri's impact on supply and Antero's marketing people took advantage.
> Antero's hedges are "paper transactions" that are settled based on NYMEX futures contracts not on regional physical prices. They actually were paid $5.322 million cash settlements on their hedges in Q1 or $0.0257/mcf.

I am sure that Antero had to pay cash to settle their hedges in Q2, so my forecast assumes a "realized" dry gas price of $2.85 for Q2. However, the physical gas market is going to get extremely tight in 2H 2021 and Q1 2022. I tell you this because I now think Antero's realized gas prices in Q3 and Q4 could be much higher than what I am using in my forecast model. Plus, NGL prices are also likely to be higher. There is a good chance that Antero will generate over $1 Billion of free cash flow from operations in 2021.