Antero Midstream (AM) Upgrade - April 25

[dan_s]

Today Raymond James increased their price target for AR by $14 to $52.

"While AR’s large percentage of NGL volumes separates the company from peers, so too does AR’s unique hedging strategy.
Entering FY22, AR had just ~50% of total gas volumes hedged while possessing no liquids hedges, allowing AR to reap the rewards of decade plus highs in oil and natural gas liquids. Additionally, AR exports roughly 65 Mboe/d in C3+ NGLs to Europe and Asia (~60% of C3+ production), further boosting the company’s already impressive NGL realizations. Looking ahead to FY23, AR has just ~2% of natural gas volumes hedged (and no liquids hedged), with management not keen on locking in a backwardated strip. For reference, AR has not added any hedges since 1Q20."

"Antero remains our favorite natural gas/NGL exposed stock. An extremely strong balance sheet, peer-leading FCF/EV yield, and below-average valuation (2022E EV/EBITDA ~3.4x vs. SMID cap average ~4.2x) all contribute to AR’s potential upside. Therefore, we reiterate our Strong Buy rating and raise our target price to $52/share (from $38/share) on an improved free cash flow outlook as a result of the stronger commodity environment."

VALUATION
"Our $52 price target is based on an EV/2022E EBITDA multiple of ~5x, conservatively at the lower-end of the historical (2000-present) E&P range of 5-7x."
-------------------------------------------
My current valuation of AR is $46/share and likely to go up if their Q1 results (coming out on 4/27) and their updated guidance confirm my forecast model assumptions.