Antero Resources (AR) Update - Sept 18

[dan_s]

I am going to update all of the Sweet 16 stock valuations based on more realist natural gas and NGL prices.
> I am sticking with my WTI oil price assumptions of $70 for Q3, $75 for Q4 and $70 for 2022.
> I am increasing my Henry Hub ngas price assumptions to $3.90 for Q3, $4.75 for Q4 and $3.50 for 2022. The NYMEX strip closed on Sept 17 at $5.12 for Q4 and $5.11 for Q1 2022. Only a very mild winter in North America will bring ngas prices back to $3.00 after Q1.

The multiples of operating cash flow I am using to value each stock also considers the strength of their balance sheet and "running room" of their development drilling inventory. Assuming just $3.50/MMBtu for all future periods, AR has some extremely valuable undeveloped leasehold.

At current oil, gas and NGL prices all of the Sweet 16 are generating free cash flow from operations and some are generating LOTS of FCF. AR is way at the top for FCF generation.

I am starting with the five gassers (AR, CRK, EQT, RRC and XEC). As each forecast/valuation model is updated, it will be posted to the EPG website on the home page first and stored under the Sweet 16 tab.
-------------------------
On 9-15-2021 JPMorgan analyst Arun Jayaram raised the price target on Antero Resources (NYSE: AR) to $21.00 (from $17.00) while maintaining a Overweight rating.

My current valuation of AR increases by $3 to $27. It is based on 5X annualized operating CFPS for 2021 + 2022. A multiple of 6X should be justified in a few months because their balance sheet ratios are rapidly improving.
> AR has a lot of their natural gas production hedged for 2H 2021, but I do expect them to capture some very good spot market prices during the winter.
> AR is the 2nd largest producer of NGLs in the U.S. and they may get much higher NGL prices than what I am using in the model. The front month propane price is $1.277/gallon or $53.63/bbl. I am assuming that AR's combined realized NGLs will average $35/bbl in Q4 and $32/bbl in 2022. Actual realized NGL prices could be much higher.
> AR's Q4 Adjusted EPS should be MUCH HIGHER than First Call's current forecast of $0.49.
> If natural gas and NGL prices stay elevated, I expect a lot more of the Wall Street Gang to upgrade this stock.
> A year ago AR's debt looked bad. They have made significant improvements in the debt structure (pushing out maturity dates) and their more than $1Billion of FCF this year has solved the near-term debt problems. If their realized natural gas price is just $3.25/mcf in 2022, AR should generate another $1Billion of free cash flow next year.