EQT Corporation stock: excellent growth conditions
EQT Company (EQT) operates as a leading independent natural gas producer with operations in the central areas of the Appalachian Basin, stretching from central Alabama to the Adirondack Mountains of New York. The company is headquartered in Pittsburgh, Pennsylvania.
The persistence of important predisposing factors to higher gasoline prices has driven EQT Corporation’s stock up more than 66% year-to-date, outpacing the market.
Meanwhile, the S&P 500 (SPX), the benchmark for the US stock market, fell 20%. Based on the same factors, EQT stock should continue to rise and as such, I believe a bullish approach to this stock would be correct.
The factors predisposing to rising gas prices all date back to the war in Ukraine. As this conflict appears to be long-lasting (as geopolitical developments suggest), gas prices should come under further upward pressure.
The war in Ukraine is causing gas shortages as the Russian aggressor increasingly cuts off supplies to its main European customers in response to Western sanctions to end the conflict. Russia has so far received six sanctions packages from Western countries that hit its economy and target the wealth of many of its oligarchs.
Among the European countries targeted by the Russian measures are Finland, Poland and Bulgaria – either because they have expressed a desire to join NATO or because they provide a platform to respond to requests for military aid from Ukrainian President Volodymyr Zelensky.
Recently, Italy and Germany were added to the list of countries receiving lower volumes of gas from Russia. A few days ago, Gazprom announced gas cuts on the Nord Stream 1 gas pipeline to Germany and on flows to Italy via Eni SpA (E), the Italian global oil and gas company.
While the Russian operator cited temporary technical difficulties as the reason for the decision, the impression is different in Germany and Italy, as they believe the measure is the result of a political decision.
This will put additional pressure on gas prices, as spot markets estimate that Germany and Italy, whose energy needs are 45% or more dependent on Russian gas, will struggle to cope with declining Russian gas supplies.
These countries will not have it easy, even if they conclude supply contracts with other countries or try to develop renewable energy sources.
Favorable gas price forecast for EQT
Economists expect natural gas to trade at ~$11 per million metric British thermal unit (MMBtu) 12 months from now, representing an increase of more than 58% from ~$6.94 by MMBtu (at time of writing).
EQT’s gross profit margins and free cash flow are on track to improve amid rising gas prices, taking the stock price above current levels and roughly following traces of Q1-2022 operations.
In the first quarter of 2022, driven by a 51.3% increase in natural gas futures expiring in July 2022, EQT’s adjusted EBITDA and free cash flow from operations increased significantly impressive.
Year-over-year, adjusted EBITDA increased 33% to $927 million, while free cash flow from operations increased more than 120% to $580 million.
Thanks to these impressive management results, the American natural gas producer has significantly reduced its debt (it stood at $5.05 billion as of March 31, 2022), repurchased a significant portion of its common stock and restored its payments of dividends (a quarterly distribution of $0.125 per share).
According to Toby Rice, President and CEO of EQT Corporation, all of this management performance has earned them an investment grade credit rating, which means rating agencies have great confidence in the company’s creditworthiness. .
The effects on the share price did not take long to materialize. A month after the first quarter financial results were released, the stock price peaked on June 7 at $50.41 per share, up more than 160% from its low in early 2022.
Commenting on the company’s financial results for the first quarter of 2022, Toby Rice added that the company had increased the range of projected free cash flow for this year by 50% to $2.2 billion to $2.5 billion. dollars due to the positive outlook for natural gas prices.
Not only prices but also volumes
The globalization of markets makes the North American economy feel the geopolitical tensions between Europe and Russia around gas.
Thus, in addition to the higher price, EQT and other U.S. operators will benefit from the need to increase gas stream supply to balance U.S. liquid natural gas (NGL) exports to meet increased demand from European countries.
Looking ahead to 2022, EQT expects to sell a higher total volume of liquefied natural gas than the previous year, at 16,950 to 17,550 thousand barrels (Mbbls) this year, compared to 16,900 to 17,300 Mbbls in 2021.
The Taking of Wall Street
Over the past three months, 14 Wall Street analysts have released a 12-month price target for EQT. The stock has a strong buy consensus rating based on 12 buys, two holds and no sell ratings given in the past three months.
The average EQT price target is $53.43, implying an upside potential of 48.7%.
The shares are changing hands at $35.94 at the time of writing, for a market cap of $13.3 billion, an EV/EBITDA ratio of -16.8x and a price-to-book ratio of 1. ,6x.
The stock price has fluctuated between a low of $15.71 and a high of $50.41 over the past 52 weeks. So, currently, the stock price is trading above the midpoint of the 52-week range and significantly above the 200-day moving average price of $27.60.
These statistics indicate that the stock is not cheap, but given the growth potential, an investment in EQT is worth considering.
While gas prices have many tailwinds, EQT’s balance sheet continues to improve significantly. This stock should attract more bullish sentiment.
EQT’s business provides relative certainty in an uncertain market.