Goldman Sachs likes EQT, CTRA and RRC - May 24
Posted: Wed May 24, 2023 9:05 am
Note from Goldman Sachs this morning:
Given our expectations for a less robust commodity price environment in 2024, we continue to favor producers with (1) more resilient FCF even at low gas prices; and (2) strong balance sheets, which can allow for more attractive share repurchases. These favor Buy-rated EQT and CTRA — both companies have low FCF breakeven relative to other peers, strong balance sheets (CTRA has $1 bn of cash on its balance sheet), and EQT/CTRA trade at 13%/11% average FCF yield over the next 4 years vs. natural gas E&Ps at 10%.
Rating Changes
We upgrade RRC to Neutral (from Sell) given its (1) low FCF breakeven, and (2) attractive hedges in 2023/24, which lends the shares more defensive characteristics given our gas price expectations, but see less compelling valuation (10% FCF yield at $3.50/MMBtu Henry Hub gas prices vs. peers at 10%) following the relative outperformance YTD.
Given our expectations for a less robust commodity price environment in 2024, we continue to favor producers with (1) more resilient FCF even at low gas prices; and (2) strong balance sheets, which can allow for more attractive share repurchases. These favor Buy-rated EQT and CTRA — both companies have low FCF breakeven relative to other peers, strong balance sheets (CTRA has $1 bn of cash on its balance sheet), and EQT/CTRA trade at 13%/11% average FCF yield over the next 4 years vs. natural gas E&Ps at 10%.
Rating Changes
We upgrade RRC to Neutral (from Sell) given its (1) low FCF breakeven, and (2) attractive hedges in 2023/24, which lends the shares more defensive characteristics given our gas price expectations, but see less compelling valuation (10% FCF yield at $3.50/MMBtu Henry Hub gas prices vs. peers at 10%) following the relative outperformance YTD.