Antero Resources (AR) Price Target - Feb 13

[dan_s]

Update from Neal Dingmann at Truist Financial

AR is currently trading at $27.82

Antero Resources Corporation (AR)
Time to Zig on AR while Others Still Zag Despite Lower PT

We recognize Antero’s production remains nearly 70% dry gas and 30% wet gas weighted
with virtual no hedges as dry gas has fallen by 50%+ and wet gas ~25% in the past few
months. However, the company continues to have one of the most efficient operations with
the same three rigs running in virtually the same counties. Further, AR’s balance sheet is
now pristine and the reinvestment rate remains low allowing the company to buy back shares
with the majority of its FCF. While we are lowering our PT to $41 from $48, we forecast the
current stock price is based on unrealistically low natural gas/NGL prices.

Very Little Potential Upside To Gas Priced Into The Name
While we anticipate some investors are still cautious to add to their positions of gas-focused
E&Ps given the uncertainty of the near-term gas supply/demand balance and the precipitous
move of the commodity, based on our model we estimate that the Street is assuming a $3.35/
mcf gas price deck in FY23 versus the current strip of $3.10/mcf. At a time when gas prices
have moved >$1.00/mcf per month on average we think this sets up a strong opportunity
to invest in AR, as we expect the company to continue to use FCF to buy back shares in a
lower commodity environment, increasing leverage to a potential weather or demand-driven
gas price recovery.

Updating Estimates and Lowering Price Target to $41 from $48
We continue to implicitly trust AR’s operations and cost profiles, leaving commodity,
specifically gas prices, as the only obstacle. While we do not believe gas prices will rebound
overnight, we anticipate industrial demand to boost prices until the large LNG projects kick
in by the end of next year. We have adjusted our model for our updated prices, costs, and
volumes and as such lower our price target to $41 from $48. Our $41 price target is derived
from two equally weighted methodologies, with the first being our ’23 EV/EBITDAX multiple
of 4.5x (3.5x prior and 3.3x peer group average) applied to our 2023E EBITDAX estimate
of $2,879MM ($3,828MM prior and $2,521MM consensus) and the second being a FCF/EV
Yield assumption of 12.0%.
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My current valuation of AR is $50.00, but likely to move down to $40.00 when I adjust my 2023 & 2024 natural gas and an NGL price decks.

[Fraser921]

I prefer using the latter model

>FCF/EV Yield assumption of 12.0%. > I liked it alot better when it was above 20 %

I actually sold my position. I will get back in if NG prices improve.