Update on the "Grassers" - Sept 11

[dan_s]

This morning I received a detailed report from Truist Financial that focuses on the gassers.
If you want to read the full report, send me an email: dmsteffens@comcast.net
Here are the highlights.
-----------------------------------
E&P: Gas Names Pleasantly Decoupled
Making E&P stock picking even harder than it needs to be, the gas E&P group has
moved somewhat unpredictably this year, as sentiment rather than estimates has driven
outperformance versus the commodity. Our conversations with investors lead us to
believe this trend is currently slowing, as higher multiples start to garner re-evaluation,
and we anticipate the 3Q23 earnings cycle to start this trend reversal as estimate
revisions and less bullish corporate commentary plays into the more bearish view of
many short-term holders. Please see the next page for changes to our PTs.
Timeline Recap, Diamond Hands A Winning Strategy YTD

We have received an increasing number of questions on the performance of our gas
E&P group with bulls periodically checking in on the temperature of sentiment but
otherwise blissfully pleased, and bears wondering what they are missing as the stocks
seem to ignore the downward commodity price movement. This bifurcation of opinion
comes about after three periods of performance in '23, with the first being 1/1-5/3 which
saw a 42% drop in HHUB while the stocks only dropped 13%, with thematics clearly
driving the names instead of estimates, as large funds added to their positions, as seen
by recent 13F forms. This was followed by a return to normalcy from 5/3-8/9, as the
group moved +35% after a +25% increase in HHUB, rewarding those investors that
bought the dip in the prior period and reinforcing convictions. Finally, we have seen the
group break free yet again from the commodity during the last month (8/9-9/8), with
the stocks holding nearly flat despite a 12% dip in HHUB. Put altogether, the gas E&P
group YTD is +17% versus a -36% lower commodity, while the rest of the E&P group
has traded in-line with WTI (+13% vs +9%); we expect both trends to continue until early
October, then reverse as the reality of lower realizations dampens the outlook of even
the most optimistic long-only gas bull investors. < This is my short-term concern.

Increasing Price Targets Across The Group
We are increasing our multiple assumptions and price targets for the gas E&P group,
however we continue to favor the names with the best combination of a lower multiple
and higher yield, including AR, SWN, and GPOR headed into 3Q earnings in anticipation
of a return to fundamental investing over thematics. On top of the general grouping
between our Buys & Holds as seen above, we would note two things, 1) CHK still
screens well versus the group when looking at both metrics together but has seen its
multiple increase towards the higher valued names maing it less palatable to some, and
2) RRC, EQT, and CNX's yields could still be very competitive to certain investors that
are less fazed with a higher multiple.

What Has/Hasn't Worked
The top two names in the gas E&P group YTD were GPOR (lowest multiple name seeing most appreciation) and
CNX (unveiled a New Technologies segment with $75-100mm of company expected annual FCF), with the bottom
two names being AR (unhedged in a down market, and mean revision after being the best performer in the group
in '22) and CRK (highest leverage, lowest FCF yield). Notably, AR & CRK both traded as you would expect relative
to the commodity, moving lockstep both in direction and magnitude relative to its peers which were somewhat more
agnostic to HHUB, as seen by the outperformers (GPOR/CNX) which moved contrary to the commodity in several
time periods. While we expect the bias to continue to be to the upside until estimate revisions come in October
we would anticipate, in the event of a gas commodity rally, the names that previously traded more in-line with the
commodity (AR/CRK/CHK) will outperform the group.

What To Look Out For
While we see thematics continuing to drive the stocks until well into next month, there are a few trends that could
snap names in either direction. The most topical that we expect will be lower in-basin northeast pricing, with several
gas hubs commanding a $1-handle, putting potential pressure on both 3Q23 estimates and 4Q23 realization
guidance. Additionally, while only meaningful to AR & RRC, we would highlight the resurgence of WTI pricing
as a read through to potential realization guidance increases for NGLs for the group, with C3+ pricing ~15%
higher versus the 2Q23 averages. Farther out, once the 3Q23 earnings cycle begins, we expect multiple gas
E&P companies to signal a slower pace of activity than previously discussed; we anticipate SWN being the most
impacted in this regard, with CHK continuing its price-dependent cautious rhetoric.

Antero Resources Corporation (AR): Raising Price Target To $36 From $32
We have adjusted our multiple/yield assumptions given the increase in gas E&P sentiment. Our $36 price target is
derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX multiple of 5.0x (4.0x
peer group) applied to our 2024E EBITDAX estimate of $2,372MM (consensus of $1,871MM) and the second being
a FCF/EV Yield assumption of 11.0%.

Chesapeake Energy Corporation (CHK): Raising Price Target To $110 From $100
We have adjusted our multiple/yield assumptions given the increase in gas E&P sentiment. Our $110 price target
is derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX multiple of 5.5x (4.0x
peer group) applied to our 2024E EBITDAX estimate of $3,077MM (consensus of $2,742MM) and the second being
a FCF/EV Yield assumption of 10.0%.

CNX Resources Corporation (CNX): Raising Price Target To $21 From $19
We have adjusted our multiple/yield assumptions given the increase in gas E&P sentiment. Our $21 price target is
derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX multiple of 5.0x (4.0x
peer group) applied to our 2024E EBITDAX estimate of $1,227MM (consensus of $1,128MM) and the second being
a FCF/EV Yield assumption of 11.0%.

Comstock Resources (CRK): Raising Price Target To $12 From $10
We have adjusted our multiple/yield assumptions given the increase in gas E&P sentiment. Our $12 price target is
derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX multiple of 5.5x (4.0x
peer group) applied to our 2024E EBITDAX estimate of $1,653MM (consensus of $1,394MM) and the second being
a FCF/EV Yield assumption of 10.0%. < After "The Dip", CRK is my Top Pick and I believe it will lead the Sweet 16 in 2H 2024.

EQT Corporation (EQT): Raising Price Target To $39 From $35
We have adjusted our multiple/yield assumptions given the increase in gas E&P sentiment. Our $39 price target is
derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX multiple of 5.0x (4.0x
peer group) applied to our 2024E EBITDAX estimate of $4,533MM (consensus of $4,624MM) and the second being
a FCF/EV Yield assumption of 11.0%.

Gulfport Energy Corporation (GPOR): Raising Price Target To $150 From $134
We have adjusted our multiple/yield assumptions given the increase in gas E&P sentiment. Our $150 price target
is derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX multiple of 4.0x (4.0x
peer group) applied to our 2024E EBITDAX estimate of $923MM (consensus of $927MM) and the second being a
FCF/EV Yield assumption of 13.0%.

Range Resources Corporation (RRC): Raising Price Target To $32 From $29
We have adjusted our multiple/yield assumptions given the increase in gas E&P sentiment. Our $32 price target is
derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX multiple of 5.0x (4.0x
peer group) applied to our 2024E EBITDAX estimate of $1,825MM (consensus of $1,524MM) and the second being
a FCF/EV Yield assumption of 11.0%.

Southwestern Energy Company (SWN): Raising Price Target To $9 From $8
We have adjusted our multiple/yield assumptions given the increase in gas E&P sentiment. Our $9 price target is
derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX multiple of 5.0x (4.0x
peer group) applied to our 2024E EBITDAX estimate of $3,468MM (consensus of $3,065MM) and the second being
a FCF/EV Yield assumption of 11.0%.

[Fraser921]

CRK raising to 12, its already higher than that, so that's a back door sell

[Fraser921]

Correction, crk was over 12

[dan_s]

IMO that is a HOLD on CRK. Keep in mind that they are expecting a pull back or correction in natural gas prices in Q4 and CRK is a pure gasser. EQT and RRC are also trading above their raised price targets.
Like me, Truist is "Short Term bearish an Long Term bullish" on natural gas prices.