EQT Corp. (EQT) Valuation Update - Oct 31

[dan_s]

At the time of this post EQT was trading at $37.24

After getting access to EQT's 10Q I have updated my forecast for Q3 actual results (below my forecast) and their updated Q4 guidance.

I am lowering my valuation of EQT by $2.50 to $41.00 per share. Why?
> Q3 contains a lot of one-time expenses related to the Equitran Midstream all-stock merger that closed in July.
> EQT is selling a package of non-operated properties to Equinor that will lower production by ~350 Mcfpd when it closes in December. EQT should get approximately $1.25 billion in cash proceeds from the sale, which will be used to payoff some debt.
> There is still a lot "noise" and uncertainty about natural gas prices that lowers the confidence I have in my model.
> I do expect U.S. natural gas prices to firm up with natural gas in storage moving from a surplus to a deficit to the 5-year average sometime in Q1 2025 if we just have a normal winter vs the last two very mild winters in the Eastern U.S.
> If EQT's 2025 realized natural gas price averages $3.00/mcf the Company should generate approximately $4.3 billion of operating cash flow next year (~$7.15 per share). They have not provided a capital expenditure budget for 2025, buy my guess is that it will be around $3.0 billion. < EQT should be free cash positive in Q4 2024 and all future quarters if their realized natural gas price stays over $2.50. < ~60% of EQT's 2025 natural gas is hedged with SWAPS at ~$3.25/mcf ($3.49/mcf in Q1 2025), so their commodity price risk is low.
> EQT is for those of you bullish on U.S. natural gas prices. It is currently the largest producer of natural gas in the U.S.
> Q4 production should be approximately 6.3 Bcfe per day (94.2% natural gas, 5.4% NGLs and just 0.4% condensate that sells at ~$15/bbl discount to WTI.

My updated forecast/valuation model for EQT will be posted to the EPG website this afternoon.

TipRanks: "In the last 3 months, 16 ranked analysts set 12-month price targets for EQT. The average price target among the analysts is $42.21. The 16 price targets range from $32 (Piper Sandler on 10-15-2024) to $55 (Scotiabank updated on 10-30-2024)." < 8 of the price targets have been updated since 10-30-2024 after the EQT conference call. Those 8 show price targets of $38 to $55. < Obviously, there is a very wide difference of opinions on where U.S. natural gas prices will be in 2025.

My forecast is slightly below TipRanks' consensus forecast of:
$7.7 billion of Revenues
$2.88 Net Income per share
$7.40 Operating cash flow per share.