Antero Resources (AR) Return to the Sweet 16 - Jan 2

[dan_s]

Antero Resources (AR) is back to our Sweet 16 Growth Portfolio in 2024.

It is one of the largest producers of propane in North America. Natural Gas and Propane inventories in the U.S. are high from an historical point of view, but they are well within the 5-Year range when measured by Days of Supply. A normal winter and steadily increasing propane exports should push NGL prices higher this winter. Global demand for all liquified petroleum gases (LPG) is growing much faster than global demand for crude oil.

The January weather forecast has turned bullish for propane demand.

This one is a "Gasser", but it does produce a lot of NGLs and I believe there is significant upside for NGL prices in 2024.

“While absolute propane inventories are high and prices as a percent of WTI lower than usual, fundamentals are painting a better picture in recent weeks. The U.S. recently set a new weekly record high for propane exports and printed two consecutive weeks above two million barrels per day. Overall, propane export demand has been consistently strong and has averaged 1.6 million barrels per day year-to-date, about 250,000 barrels per day or 19% above the 2022 full year average. As we move into 2024, NGL exports are expected to further increase causing potential tightness in U.S. Gulf Coast stock capacity. As a reminder, Antero exports over 50% of our C3+ production, skewed heavily towards propane in particular, directly out of the Marcus Hook terminal in Pennsylvania, and therefore, Antero's export volumes are not impacted by constraints at the Gulf Coast export docks. In fact, with tight capacity in the Gulf Coast and strong international pricing, Antero will be able to take advantage of its capacity out of Marcus Hook to capture these wide arbitrage opportunities.” – Dave Cannelongo, AR's SVP Liquids Marketing & Transportation on the Company's Q3 conference call

At the time of this post AR was trading at $22.83, which compares to First Call's price target of $31.24.

TipRanks: "In the last 3 months, 10 ranked analysts set 12-month price targets for AR. The average price target among the analysts is $32.70. The 10 price targets range from $26 to $38."

TipRank's consensus forecast for 2024 is $2.10 EPS on total revenues of $5.1 billion. Operating cash flow of $1.6 billion, $5.32/share. Free cash flow in 2024 should be $500 to $600 million.

On November 25th we published a profile on AR. At that time my valuation was $33.00 per share. Today I updated my forecast model for AR, breaking out 2024 by quarter and extending it into 2025. I've lowered my valuation by $1 to $32.00. < 40% upside.

Fast forward a year and my valuation could go to $47.00.

Production mix in 2024 should be approximately 65% natural gas, 33% NGLs and 2% crude oil. < Sales of liquids s/b ~52% of AR's revenues in 2024.

AR only has ~2.5% of its 2024 natural gas hedged at $2.53, so it has significant commodity price risk, which is also significant upside potential if ngas and NGL prices do firm up.

My updated forecast/valuation model for AR has been posted to the EPG website. It is based on AR's realized natural gas price averaging $3.00/mcf in 2024. The Company's average realized natural gas price in 2023 should end up being ~$2.75/mcf.