AR valuation raised

[dan_s]

I have increased my valuation of Antero Resources (AR) common stock to $47.50/share. This compares to First Call's price target of $34.07, which has not changed since mid-November. Considering the much improved outlook for commodity prices, it is strange that First Call's price target has not changed at all. For a company of this size ($7.8 Billion market cap), AR seems to get very little analysts' coverage.

Antero's guidance for 2017 was very close to what I had in my previous forecast, but their production mix changed slightly.

For 2017, Antero has 1,860,000 MMBtu/day of natural gas hedged at $3.63. This compares to forecast production for 2017 of 1,680,000 MMBtu/day. By having more gas hedged than their actual production, Antero's realized gas price will be very high, around $3.70/mcf no matter what gas prices do this year.

Realized gas price = (Actual sales at market + cash settlements on hedges) / produced volumes For 2016, AR's realized natural gas prices was more than $4.30/mcf each quarter.

During 2016, Antero received cash settlements on their hedges of close to $1 Billion. Total revenues in 2017 are now expected to top $3.5 Billion.

AR is currently trading at a very low multiple of operating cash flow per year (~6X my forecast CFPS).
A company with annual production growth of more than 20% locked in should be trading for at least 12X CFPS. The Sweet 16 average stock price is 14X operating CFPS.

Here are cash flow per share actuals and forecasts for AR:

2014A = $3.74
2015A = $3.52
2016E = $3.99 (First Call's CFPS forecast is $4.07)
2017E = $4.36
2018E = $6.22 < From First Call
2019E = $6.58 < From First Call

You can view my forecast model for AR on the EPG website and you can download it to Excel if you wish.