EQT Corp (EQT) Price Target - Jan 23

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

EQT Corp (EQT) Price Target - Jan 23

Post by dan_s »

From RBC Capital January 22, 2023
EQT Corporation
Quarterly Check-Up: 4Q22

RBC's new price target is $50, with an Upside Scenario of $65. My current valuation is $52.

Our view: There have been several overhangs on EQT with well completion
delays, the FTC delaying the THX acquisition close, and significantly weaker
gas prices. Despite those concerns, we expect management to provide
a good path on its strategies with the 2023 outlook. We think the key
investor debates are progress on the FTC request and visibility/timeline
on the Tug Hill deal closing, progress on the delayed wells, the appetite
for share buybacks at current valuations, impacts of weaker gas prices on
shareholder returns/buybacks, and data on the new well designs.

Key points:

• Our 4Q22 EPS/CFPS estimates decrease by $0.37/$0.46 to $0.48/$1.60
mostly reflecting final benchmark commodity prices that were above our
prior natural gas price forecast and impacts related to adverse winter
weather. Our estimates compare to the $0.49/$1.54 consensus (we
removed outlier estimates, most likely related to cash hedge settlement
variations). We model gas diffs at ($0.90)/Mcf, inline to guidance.

• Our 2023/2024 EPS/CFPS estimates change reflecting RBC's most recent
commodity deck update (note). Our estimates also account for a delayed
Tug Hill acquisition closing to July 1. We reduce our PT by $5/share to $50
related to the weaker near-term natural gas macro.


• We model 4Q22 production at 462 Bcfe, similar to consensus and just
below the midpoint of the 450-475 Bcfe guidance. Adverse weather
around YE22 resulted in a 1-2% impact to 4Q22 volumes.

• We expect 4Q22 capital spending of $400 million, in line with consensus
estimate and at the midpoint $375-425 million guidance range. We
calculate FCF generation of $242 million.

• We calculate that EQT's natural gas hedge position resulted in a cash loss
of slightly over $1.2 billion.

Channel checks and investor topics:

• EQT plans to provide a formal 2023 budget and outlook with earnings
that include current assets. We expect 1Q23 flat to the pre-weather
4Q22 guidance but show growth in 2Q23 and then reaching the 500
Bcfe maintenance run-rate by 3Q23. There were ~25 wells that were
delayed in 2022 due to infrastructure and supply chain issues that should
be completed in 1H23 getting EQT back to its base maintenance case.
We expect a capital budget of $1.7-1.8 billion that includes 10-15% YoY
inflation. The Tug Hill assets are additive and likely require an annualized
$400 million for 290+ Bcf.

• Stock buybacks were likely modest and similar to 3Q22 with blackedout due to the FTC notice and related PSA changes. Following the 8K
disclosure (December), EQT was able to restart stock repurchases.

• We think conversation with LNG counterparties are ongoing, but an
agreement likely awaits a more optimal time.

• The Mach 3 well designs continue to be tested, though we anticipate
EQT waits until late-2023 because a number of these were the delayed
completions, so more time for data is needed.
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EQT is the largest natural gas producer in the U.S. with production over 5.3 Bcf per day. This one is all about the natural gas price.
Dan Steffens
Energy Prospectus Group
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