Antero Resources (AR) Valuation Update - Oct 10

[dan_s]

I am increasing my valuation of AR by $4 to $78/share.

At the time of this post AR was trading at $33.05.

TipRanks: "In the last 3 months, 8 ranked analysts set 12-month price targets for AR. The average price target among the analysts is $52.25. The 8 price targets range from $37 to $65."

Why my valuation is higher:
> I increased my natural gas price forecast for 2023 from $5.00 to $6.50 per MMBtu.
> AR's balance sheet is now in great shape and they are on pace to generate over $3 billion of free cash flow from operations this year.
> All of their "Bad Hedges" roll off at year-end and their high BTU gas sells at a $0.30 to $0.40 premium.
> AR also produces a lot of NGLs and the NGL market is very strong.
> FCF has been used for debt reduction and stock repurchases. I do expect AR to start paying dividends.

From the Q2 press release:
Michael Kennedy, Chief Financial Officer of Antero Resources said, "During the second quarter, we accelerated our return of capital program by purchasing approximately $250 million of shares. At the same time, we reduced debt by nearly $400 million resulting in leverage of just 0.6x. As previously communicated, we intend to increase our return of capital during the second half of 2022 to greater than 50% of Free Cash Flow. Based on today's commodity prices, we anticipate full-year 2022 shareholder returns to be at the high end of our previously announced target of 25% to 50% of 2022 Free Cash Flow. We expect in excess of $2.5 billion of Free Cash Flow in 2022 and over $10 billion of Free Cash Flow through 2026, based on current backwardated commodity prices. Today's balance sheet strength and a strong Free Cash Flow outlook will allow us to deliver increasing capital returns to our shareholders."

My updated forecast/valuation model will be posted to the EPG website late today.