EQT Corp (EQT) Update - Dec 15
Posted: Tue Dec 15, 2020 11:07 am
EQT is currently trading at $14.05.
BofA Equity Research initiated coverage this morning with a BUY rating and a $19.00 price target. First Call's price target is $20.21 and my valuation is $25.00.
Notes below are from BofA:
See recent pull back as particularly attractive entry point
We initiate coverage of EQT at Buy. EQT is the largest natural gas producer in the US. We view the recent pull back in the stock as a particularly attractive entry point with options on continued execution of its turnaround, positioning the shares as a differentiated option on the broader gas market. Our $19 PO is anchored on our DCF valuation, which assumes a long -term commodity deck of $2.60 HH / $45 WTI.
With a current capital structure that is ~58% net debt, EQT’s equity value is highly sensitive to the assumption for long-term natural gas prices, with every $0.10 change impacting the value by ~$5 /share, assuming EQT remains ex growth.
EQT is a turnaround story with options
EQT became a turn around story after Toby and Derek Rice completed a successful proxy bid to take control of the company last year amidst dissatisfaction on the execution and delivery of promised merger synergies. While a lot of heavy lifting has already been accomplished in our view, shares could further benefit from efficiency gains from the shift to large combo development and management’s target to offload firm transport (FT) commitments on the Mountain Valley Pipeline (MVP) that we believe could have a value of ~$2 to $3/share assuming long -term Appalachia differentials of ($0.60)-($0.55), and that the pipe comes online and is a free option in the shares at current levels.
See shares reflecting $2.50 gas vs our $2.60 base case
Price Objective 19.00 USD
At current levels, we estimate EQT discounts long-term gas price around $2.50 HH, or slightly below strip (~$2.52 HH). Our base case currently assumes long-term $2.60, which is higher than strip given the significant decline in the US rig count and what we perceive as greater capital discipline among the US oil that we highlighted E&Ps and gassy names.
We consider the impact of a management that is clearly incentivized to execute the original vision for the combined company in terms of lower costs as an additional upside – with both initiatives positioning EQT with a stock specific investment case that is over and above any improvement in the commodity, while mitigating downside risks.
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My valuation of $25.00/share is based on HH natural gas averaging $3.00/MMBtu in 2021.
BofA Equity Research initiated coverage this morning with a BUY rating and a $19.00 price target. First Call's price target is $20.21 and my valuation is $25.00.
Notes below are from BofA:
See recent pull back as particularly attractive entry point
We initiate coverage of EQT at Buy. EQT is the largest natural gas producer in the US. We view the recent pull back in the stock as a particularly attractive entry point with options on continued execution of its turnaround, positioning the shares as a differentiated option on the broader gas market. Our $19 PO is anchored on our DCF valuation, which assumes a long -term commodity deck of $2.60 HH / $45 WTI.
With a current capital structure that is ~58% net debt, EQT’s equity value is highly sensitive to the assumption for long-term natural gas prices, with every $0.10 change impacting the value by ~$5 /share, assuming EQT remains ex growth.
EQT is a turnaround story with options
EQT became a turn around story after Toby and Derek Rice completed a successful proxy bid to take control of the company last year amidst dissatisfaction on the execution and delivery of promised merger synergies. While a lot of heavy lifting has already been accomplished in our view, shares could further benefit from efficiency gains from the shift to large combo development and management’s target to offload firm transport (FT) commitments on the Mountain Valley Pipeline (MVP) that we believe could have a value of ~$2 to $3/share assuming long -term Appalachia differentials of ($0.60)-($0.55), and that the pipe comes online and is a free option in the shares at current levels.
See shares reflecting $2.50 gas vs our $2.60 base case
Price Objective 19.00 USD
At current levels, we estimate EQT discounts long-term gas price around $2.50 HH, or slightly below strip (~$2.52 HH). Our base case currently assumes long-term $2.60, which is higher than strip given the significant decline in the US rig count and what we perceive as greater capital discipline among the US oil that we highlighted E&Ps and gassy names.
We consider the impact of a management that is clearly incentivized to execute the original vision for the combined company in terms of lower costs as an additional upside – with both initiatives positioning EQT with a stock specific investment case that is over and above any improvement in the commodity, while mitigating downside risks.
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My valuation of $25.00/share is based on HH natural gas averaging $3.00/MMBtu in 2021.