Market conditions are expected to benefit Antero Resources (NYSE: AR) in the following quarters, as they have done so far this year. It wrapped up a stellar third quarter, where its sales shot up over 285% from the prior-year period. Crude oil and natural gas prices are likely to remain high for the rest of 2022 due to the continuing war in Ukraine, the OPEC+ production cut, and economic sanctions against Iran. Also, Europe is slashing Russian energy exports by roughly two-thirds this year alone, which should have a massive impact on energy prices. Therefore, Antero remains an attractive bet at current levels. We are bullish on AR stock.
Higher gas prices have enabled the company to reduce its debt load to an acceptably low level, moving forward. It effectively used the higher cash flows to pay down its debt load and reduce its financial and business risk. Its management has optimized its debt load and structured the company balance sheet so it can effectively weather any storm.
Moreover, the company can expect to save $24 million per year in interest charges with its recent move to purchase $300 million of its bonds. Consequently, Antero will be left without any maturities until 2026.
The company has been taking an aggressive production growth approach while optimizing its balance sheet. Subsequently, its hedges have started rolling off, and its stock is likely to be a true proxy for energy prices in the future. Therefore, there is plenty to like about Antero at this time, and it looks like it could be a remarkable long-term investment.
Even the TipRanks Smart Score rating system agrees, as AR stock has a 8 out of 10 Smart Score, implying that it can outperform the market, going forward.
Antero’s Incredible Q3 Results
Antero recently posted spectacular third-quarter results, delivering a whopping $2.06 billion in sales. It comfortably beat estimates by over $80 million, and its sales grew by over 285% from the same period last year. The stellar results naturally reflected the conducive market conditions; the firm currently operates with record-high gas prices. The situation will likely remain over the next several quarters, indicating massive upside ahead for AR stock. Its third-quarter results show that it has a robust balance sheet with low debt and access to high-priced markets via its transportation portfolio.
Moreover, Antero’s management also talked about its incredible progress in achieving its ESG initiatives. It has already reduced greenhouse-gas emissions by a healthy 36% since 2019. Antero’s ability to effectively lower carbon energy has substantially improved the lives of those living in energy poverty.
Furthermore, the firm’s debt reduction program, which began in the fourth quarter of 2019, has effectively reduced debt by an amazing $2.6 billion. Michael Kennedy, Chief Financial Officer of the company, states, “Because of this aggressive focus on debt reduction, we are now poised to return the majority of our free cash flow to our shareholders.”
AR ended the quarter with a massive $797 million in free cash flow, which equates to a trailing twelve-month free cash flow margin of over 10%. Its net cash from operational activities ended at a whopping $1.09 billion.
Is AR a Good Stock to Buy, According to Analysts?
Turning to Wall Street, AR stock maintains a Strong Buy consensus rating. Out of eight total analyst ratings, six Buys, two Holds, and zero Sell ratings were assigned over the past three months. The average AR price target is $50, implying 41.2% upside potential. Analyst price targets range from a low of $34 per share to a high of $61 per share.
Conclusion: Antero May be a Great Long-Term Play
The strength in the energy sector bodes remarkably well for Antero, as it has a high expected long-term FCF yield and breakout potential with its current fundamentals. We’re betting on Antero, and we think that energy, in general, will be a great long-term investment. However, there are always risks, and its share price will be volatile.
The potential for highly-sustained free cash flows and this opportunity’s long-term nature makes us think that AR could be a great investment over time. The free-cash-flow machine that is Antero has the potential to sustain a very high dividend over time if it chooses to pay one.
Perhaps the most attractive element to investing in AR stock is its price. Despite the momentous run-up in AR stock’s price, it still trades at a reasonable valuation compared to its peers in the energy sector. It trades at just 1.5x forward (next 12 months) sales and 4.4x forward free cash flow despite the superb outlook ahead and its robust financial performance of late.
